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Chapter 13: 10RQ (page 707)

What is treasury stock? What type of account is Treasury Stock, and what is the account鈥檚 normal balance?

Short Answer

Expert verified

Treasury Stock refers to previously outstanding stock repurchased from stockholders by the issuing company. It is a contra equity account with a normal debit balance.

Step by step solution

01

Treasury stock

Treasury stocks are the portion of a company's stock that are previously issued and then bought back.

For example, ABC company buys back its shares for $200 million. The company shall record this in shareholder equity on the balance sheet. It will record $200 million as cash under (credit) and $200 million as treasury stock (debit).

Companies purchase treasury stock to increase net assets (buying low and selling high), support the company's stock price, stay away from a takeover, and reward esteemed employees with stock.

02

Account and normal balance-

An account's normal balance alludes to the debit or credit balance that's normally expected from an entry. This concept is ordinarily utilized in the double-entry accounting method.

The normal balance of treasury stock is a debit balance, which is the opposite of the normal balance of an equity account.

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Most popular questions from this chapter

Question: Dividing cash dividends between preferred and common stock

Copperhead Trust has the following classes of stock:

Preferred Stock鈥�6%, \(12 par value; 8,500 shares authorized, 7,000 shares issued and outstanding

Common Stock鈥擻)0.10 par value; 2,100,000 shares authorized, 1,400,000 shares issued and outstanding

Requirements

1. Copperhead declares cash dividends of $44,000 for 2018. How much of the dividends goes to preferred stockholders? How much goes to common stockholders?

What is a prior-period adjustment?

Journalizing stock issuance and cash dividends and preparing the stockholders鈥� equity section of the balance sheet

C-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes C-Mobile to issue 120,000 shares of 9%, \(150 par value cumulative preferred stock, and 140,000 shares of \)3 par value common stock. During the first month, C-Mobile completed the following transactions:

Oct. 2 Issued 18,000 shares of common stock for a building with a market value of \(260,000.

6 Issued 650 shares of preferred stock for \)160 per share.

9 Issued 14,000 shares of common stock for cash of \(84,000.

10 Declared a \)13,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable account for preferred and common stock.

25 Paid the cash dividend.

Requirements

1. Record the transactions in the general journal.

2. Prepare the stockholders鈥� equity section of C-Mobile鈥檚 balance sheet at October 31, 2018. Assume C-Mobile鈥檚 net income for the month was $95,000.

Question: Accounting for cash dividends

Java Company earned net income of \(85,000 during the year ended December 31, 2018. On December 15, Java declared the annual cash dividend on its 4% preferred stock (par value, \)120,000) and a $0.25 per share cash dividend on its common stock (50,000 shares). Java then paid the dividends on January 4, 2019.

Requirements

2. Journalize for Java the entry paying the cash dividends on January 4, 2019.

Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet

The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:

Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.

12 Issued 400 shares of preferred stock for cash of \)23,000.

14 Issued 1,500 shares of common stock in exchange for land with a market value of $17,000.

Requirements

1. Record the transactions in the general journal.
See all solutions

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