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Chapter 13: Q6SE_1 (page 708)

Accounting for the purchase and sale of treasury stock

Discount Furniture, Inc. completed the following treasury stock transactions in 2018:

Dec. 1 Purchased 1,900 shares of the company鈥檚 \(1 par value common stock as treasury stock, paying cash of \)5 per share.

15 Sold 200 shares of the treasury stock for cash of \(8 per share.

20 Sold 1,000 shares of the treasury stock for cash of \)1 per share. (Assume the balance in Paid-In Capital from Treasury Stock Transactions on December 20 is $2,400.)

Requirements

1. Journalize these transactions. Explanations are not required.

Short Answer

Expert verified

On dec 1- Treasury stock- common will be debited and cash will be credited with $11,200

On dec 15- Cash will be debited $2,000; Treasury stock- common $1,400 and Paid-In Capital from Treasury Stock $900 will be credited

On dec 20- Cash $2,100, Paid-In Capital from Treasury Stock $2,100, and Retained Earnings $700 will be debited and Treasury Stock-Common $4,900 will be credited

Step by step solution

01

Basic Introduction-

Working note:

Treasury Stock - Common $11,200($ 7 per share x 1 comma 600 shares)

Cash $2,000($ 10 per share x 200 shares)

Treasury Stock-Common $1,400($ 7 per share x 200 shares)

Paid-In Capital from Treasury Stock $600 (($ 10 dash $ 7) per share x 200 shares)

Cash $2,100($ 3 per share x 700 shares)

Paid-In Capital from Treasury Stock$2,100($ 3 per share x 700 shares)

Retained Earnings $700 ($4900- $ 2100- $2100)

Treasury Stock-Common $4,900 ($ 7 per share x 700 shares)

02

Journals-

Date

Transaction

Debit

Credit

Dec. 1

Treasury Stock - Common

$11,200

Cash

$11,200

Dec. 15

Cash

$2,000

Treasury Stock鈥擟ommon

$1,400

Paid-In Capital from Treasury Stock

$600

Dec. 20

Cash

$2,100

Paid-In Capital from Treasury Stock

$2,100

Retained Earnings

$700

Treasury Stock-Common

$4,900

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Most popular questions from this chapter

Computing earnings per share, price/earnings ratio, and rate of return on common stockholders鈥� equity

Gullo Company reported these figures for 2018 and 2017:

2018 2017

Income Statement鈥攑artial:

Net Income \( 18,900 \) 24,000

Dec. 31, 2018 Dec. 31, 2017

Balance Sheet鈥攑artial:

Total Assets \( 285,000 \) 200,000

Paid-In Capital:

Preferred Stock鈥�11%, \(9 Par Value; 60,000 sharesauthorized, 10,000 shares issued and outstanding\) 90,000 \( 90,000

Common Stock鈥擻)1 Par Value; 45,000 sharesauthorized, 30,000 shares issued and outstanding

30,000 30,000

Paid-In Capital in Excess of Par鈥擟ommon 14,000 14,000

Retained Earnings 51,000 42,000

Total Stockholders鈥� Equity \( 185,000 \) 176,000

Learning Objectives 3, 4, 6

2. Retained Earnings Dec. 31,

2018 \(218,280

Requirements

1. Compute Gullo Company鈥檚 earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.

2. Compute Gullo Company鈥檚 price/earnings ratio for 2018. Assume the company鈥檚 market price per share of common stock is \)9. Round to two decimals.

3. Compute Gullo Company鈥檚 rate of return on common stockholders鈥� equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.

How does authorized stock differ from ouststanding stock?

Question: Journalizing issuance of stock鈥攁t par and at a premium

Colorado Corporation has two classes of stock: common, \(3 par value; and preferred, \)30 par value.

Requirements

2. Journalize Colorado鈥檚 issuance of 4,500 shares of preferred stock for a total of $135,000

London Corporation has two classes of stock: Common, \(1 par value; and Preferred, \)4 par value. Journalize the issuance of 10,000 shares of common stock for $8 per share.

Organizing a corporation and issuing stock

Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

1. What is the main advantage they gain by selecting a corporate form of business now?
See all solutions

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