Question

For 7 - 10 use the following Best Incorporated Balance Sheet (partial) At December 31, Year 6 Stockholders' Equity: Preferred stock (par $50) Common stock (par $0.01) Additional Paid in capital Total paid in capital Retained earnings Treasury stock (10,000 common shares) Total stockholders' equity $50,000 5,000 4,496,000 4,551,000 1,256,000 (130,000) $5,677,000 Assume that the company sold 3,000 shares of its treasury stock for $15 per share. 7. How much would additional paid in capital change? $. 8. How much would Stockholders' Equity change? $_ 9. How many shares of Common stock would be outstanding after the reissuance? _shares 10. How many shares of Commons stock would be issued after the reissuance? shares

Answer 1

1.

Treasury stock are 10,000 of $ 130,000,

so the cost of 1 treasury stock= 130,000/10,000= $ 13

Now the 3000 treasury stock are sold at $15 that is more than cost by $2 (15-13)

Now at sale of treasury stock, cash is debited by amount received i.e. 15*3000=45,000 & treasury stock is credited at 39,000 (3*3000)

Now this difference of $ 2 is credited to paid in capital-Treasury stock. of $ 6,000

So this will increase the paid in capital by 2*3000= $6,000

2.

Due to sale of treasury stock, treasury stock is reduced by $ 39,000 and paid in capital is increased by 6,000.

Since treasury stock is negative item to stockholder equity its decrease means increase in stock holder equity

So total change inc stockholder equity

=Reduction of treasury stock+Addition in paid in capital

=39,000+6,000
=$45,000

3.

Common stock issued and outsanding prior to treasury stock issued=5000/.01

=500,000 shares

Common shares outstanding prior to sale of treasury stock=(5000/.01)-10,000

=500,000-10,000

=490,000 shares outstanding

Now after treasury stock are sold, outstanding shares are as follows=

=490,000+3,000

=493,000 shares

4.

Treasury stock has no impact on issued common stock neither on sale nor on issuance.

So commons stock issued after reissuance are=500,000 shares