Question

Crane Company originally issued 4400 shares of $10 par value common stock for $132000 ($30 per share). Crane subsequently purchases 430 shares of treasury stock for $26 per share and resells the 430 shares of treasury stock for $31 per share. In the entry to record the sale of the treasury stock, there will be a

credit to Common Stock for $11180.

credit to Paid-In Capital from Treasury Stock for $2150.

debit to Paid-In Capital in Excess of Par of $12900.

credit to Treasury Stock for $4300.

Answer 1

The correct answer is, credit to Paid-In Capital from Treasury Stock for $2150.

Explanation:

When the company purchase 430 Treasury stock for $26 per share, the treasury stock account is debited and cash account is credited for $11,180 (430 × $26). The journal entry will be,

Debit - Treasury stock .... 11,180
Credit - Cash ................... 11,180

Here, the company resells the Treasury stock at a price higher than what it paid to purchase it, which is $31 per share. In the journal entry, Cash account is debited for $13,330 (430 × $31) which is the actual amount received. Treasury stock account is credited with the actual amount paid for purchase of Treasury stock which is amounted to $11,180 (430 × $26). The balance of $2,150 ($13,330 - $11,180) will be credited to Paid-In Capital from Treasury Stock. Therefore, the journal entry would be,

Debit - Cash ..... 13,330
Credit - Treasury stock ........ 11,180
Credit - Paid-In Capital from Treasury Stock ........ 2,150

Hence, in the entry to record the sale of the treasury stock, there will be a, credit to Paid-In Capital from Treasury Stock for $2,150.