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Chapter 13: Q6SE_2 (page 708)

Question: 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

2. How will Discount Furniture, Inc. report treasury stock on its balance sheet as of December 31, 2018?

Short Answer

Expert verified

Answer

The company will deduct the treasury stock value from Shareholders鈥� equity in the balance sheet under the retained earnings of the company.

Step by step solution

01

Basic Introduction

Treasury stock refers to the outstanding shares of the company which is buy back by the corporation for allocation of surplus capital or to take control of the company by holding diversified shares.

02

Partial Balance sheet

Shareholder鈥檚 equity

Retained Earnings

xxx

Less: Treasury Stock

xxx

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Most popular questions from this chapter

Identifying advantages and disadvantages of a corporation

Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

g. Government regulation is expensive

Journalizing treasury stock transactions and reporting stockholders鈥� equity

Southern Amusements Corporation had the following stockholders鈥� equity on

November 30:

Paid-In Capital:

Common Stock鈥擻(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders鈥� Equity \) 55,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

3. How many shares of common stock are outstanding after the purchase oftreasury stock?

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders鈥� equity

The balance sheet of Cullins Management Consulting, Inc. at December 31, 2017, reported the following stockholders鈥� equity:

Common Stock鈥擻(10 Par Value; 200,000 sharesauthorized, 22,000 shares issued and outstandingPaid-In Capital:

163,000

\) 220,000

580,000

Retained Earnings

Total Stockholders鈥� Equity \( 743,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 360,000

Total Paid-In Capital

During 2018, Cullins completed the following selected transactions:

Feb. 6 Declared a 5% stock dividend on common stock. The market value of

Cullins鈥檚 stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,000 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.20 per share cash dividend on the common stock outstanding.

Requirements

1. Record the transactions in the general journal.

2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Cullins鈥檚 net income for the year was $87,000.

3. Prepare the stockholders鈥� equity section of the balance sheet at December 31, 2018.

Eates Corp. issued 8,000 shares of no-par common stock for $13 per share.

Requirements

2. Which type of stock results in more total paid-in capital?

What account is used to record the premium when issuing common stock? What type of account is this?
See all solutions

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