Question

Calculator Instruction Chart Of Accounts General Journal Instruction On April 2 a corporation purchased for cash 7,000 shares of its own $11 par common stock at $27 a share. It sold 4,000 of the treasury shares at $30 a share on June 10. The remaining 3,000 shares were sold on November 10 for $23 a share. Required: (a) Journalize the entries to record the purchase (treasury stock is recorded at cost). (b) Joumalize the entries to record the sale of the stock. "Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

a. The journal entry to record purchase is,

Journal Post.Ref. Credit Date Description April 2 Treasury stock Cash Debit 189,000 189,000

●When Treasury stock is purchased it wil be recorded at its purchase value. Therefore, cash paid id credited and Treasury stock is debited with $189,000 (7,000 × $27).

b. The journal entries to record sale is,

Post.Ref. Credit Journal Date Description June 10 Cash Treasury stock Paid in capital from Sale of Treasury stock Debit 120,000 108,000 12,000 Nov 10 Cash Paid in capital from Sale of Treasury stock Treasury stock 69,000 12,000 81,000

●When Treasury stock is sold at a price higher than the cash paid for purchasing it, cash account is debited with the amount received, Treasury stock will be credited with the purchase price of the stock and the difference is credited to paid in capital from sale of Treasury stock.

In this case, 4,000 shares are sold at $30 a share which higher than the purchase price of Treasury stock $27 a share. Therefore, cash received $120,000 (4,000 × $30) is debited and Treasury stock is credited with the actual purchase price of 4,000 shares which is $108,000 (4,000 × $27). The difference amount of $12,000 ($120,000 - $108,000) is credited to paid in capital from sale of Treasury stock.

●When Treasury stock is sold at a price lower than the cash paid for purchasing it, cash account is debited with the amount received, Treasury stock will be credited with the purchase price of the stock and the difference is debited to paid in capital from sale of Treasury stock.
In this case, 3,000 shares are sold at $23 a share which lower than the purchase price of Treasury stock $27 a share. Therefore, cash received $69,000 (3,000 × $23) is debited and Treasury stock is credited with the actual purchase price of 3,000 shares which is $81,000 (3,000 × $27). The difference amount of $12,000 ($81,000 - $69,000) is debited to paid in capital from sale of Treasury stock.