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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

What is the effect on the accounting equation when cash dividends are declared?

What is the effect on the accounting equation when cash dividends are paid?

Rocky Corporation鈥檚 accounting records include the following items, listed in no particular order, at December 31, 2018:

Other Income and (Expenses) \( (6,000) Cost of Goods Sold \) 29,200

Net Sales Revenue 70,800 Operating Expenses 22,000

Gain on Discontinued Operations 4,800

The income tax rate for Rocky Corporation is 30%. Prepare Rocky鈥檚 income statement for the year ended December 31, 2018.

Omit earnings per share. Use a multi-step format

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders鈥� equity on its balance sheet at June 30, 2018:

Preferred Stock鈥�7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders鈥� Equity \) 17,640,000

Common Stock鈥擻(1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a \)500,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.

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.

What are the basic rights of stockholders?
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