Question

(E13-9) South Company had 1,000,000 shares of $5 par value common stock issued and out- standing on January 1, 2005. The following events took place during 2006: March 15, 2006: Purchased 100,000 shares of treasury stock for $20 per share. June 30, 2006: Reissued 50,000 shares of treasury stock for $23 per share. December 15, 2006: Reissued 10,000 shares of treasury stock for $19 per share. Required: Prepare journal entries for each of the three transactions.

Answer 1

Date Credit Remarks Debit $2,000,000 Mar. 15 Jun. 30 $1,150,000 General Journal Treasury Stock Cash Cash Treasury Stock Additional Paid in Capital in Excess of Par-Treasury Cash Additional Paid in Capital in Excess of Par-Treasury Treasury Stock $2,000,000 [100,000 shares x $20] [50,000 shares x $23] $1,000,000 [50,000 shares x $20 --> Par value of treasury stock sold] $150,000 [Balancing fig. --> $1150000 - $1000000 = $150000] [10,000 shares x $19] [Balancing fig. --> $200000 - $190000 = $10000] $200,000 [10,000 shares x $20 --> Par value of treasury stock sold] Dec. 15 $190,000 $10,000 NOTE: For transaction dated Dec. 15, when treasury stocks are reissued at price less than its par value, difference between par value and cash received shall be adjusted to the extent of balance available in Additional Paid in Capital in Excess of Par-Treasury. If balance is not sufficient, the shortfall shall be adjusted against retained earnings. However, for the given scenario, later situation doesn't arise and so balance in Additional Paid in Capital in Excess of Par-Treasury account is utilized for the difference between cash received and par value of treasury stock reissued.