Question

5-1 .7 ury Stock Analysis Ray Holt Corporation has retained you as a consultant on accounting policies and dures. During 2016, the company engaged in a number of treasury stock transactions, having foreseen an opportu- nity to report its treasury stock as an asset and to recognize a profit in trading its own stock. The transactions were as follows: 1. Reacquired 100 shares of its $10 par common stock at $20 per share. The shares had originally been issued at S23 per share. $23 per share. Reacquired 50 shares of its $100 par preferred stock at $140 per share. The shares had originally been issued at S170 per share. 3. 4. Sold all common treasury shares held at $25 per share. 5. Reacquired 150 shares of its $100 par preferred stock at $130 per share. The shares had originally been issued at $170 per share. Retired all preferred shares held in the treasury 6.

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Answer 1

Answer-1:

The Corporation is not correct in assuming the Treasury stock an asset. Treasury stock is a contra equity account and it reduces the stockholder’s equity. The gain or loss from sale of treasury stock is not recognized in the income statement; rather it is shows as the part of Additional Paid in Capital- Treasury Stock in the balance sheet.

Answer-2:

The analysis of Treasury Stock transactions is shown using the journal entries as follows:

Journal entries
#	Account Titles	Debit	Credit
1	Treasury Stock- Common Stock (100 Shares @ $20)	$   2,000
	Cash		$   2,000
	(Being Common Stock Reacquired for cash)
2	Treasury Stock- Common Stock (150 Shares @ $24)	$   3,600
	Cash		$   3,600
	(Being Common Stock Reacquired for cash)
3	Treasury Stock- Preferred Stock (50 Shares @ $140)	$   7,000
	Cash		$   7,000
	(Being Preferred Stock Reacquired for cash)
4	Cash (250 Shares @ $25)	$   6,250
	Additional Paid in Capital (6250-5600)		$      650
	Treasury Stock- Common Stock (2000+3600)		$   5,600
	(Being Treasury Stock-Common Stock sold)
5	Treasury Stock- Preferred Stock (150 Shares @ $130)	$ 19,500
	Cash		$ 19,500
	(Being Preferred Stock Reacquired for cash)
6	Preferred Stock	$ 26,500
	Treasury Stock- Preferred Stock (7000+19500)		$ 26,500
	(Being Treasury Stock- Preferred Retired)

Answer-3:

The gain or loss from sale of treasury stock is not recognized in the income statement; rather it is shows as the part of Additional Paid in Capital- Treasury Stock in the balance sheet.