Question

Joe Dumars Company has outstanding 40,000 shares of $5 par common stock which had been issued at $30 per share. Joe Dumars then entered into the following transactions.  

.1. Purchased 5,000 treasury shares at $45 per share.  

2. Resold 2,000 of the treasury shares at $49 per share.  

3. Resold 500 of the treasury shares at $40 per share.  

Indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method.

Answer 1

	Asset	Liabilities	Stockholders' equity	paid in capital	retained earnings	Net income
1)	Decrease by $2250000	No effect	Decrease by $2250000	No effect	No effect	No effect
2)	Increase by $98000	No effect	Increase by $90000	Increase by $8000	No effect	No effect
3)	Increase by $20000	No effect	increase by $22500	Decrease by $2500	No effect	No effect

	Journal	Debit ($)	Credit ($)
1)	Treasury stock	2250000
	Cash		2250000
2)	Cash	98000
	Treasury Stock		90000
	Paid in capital - treasury stock		8000
3)	Cash	20000
	paid in capital	2500
	Treasury Stock		22500