Question

Toblem 11-2A LO C3, P2, P3 Sanchez Company reports the following components of stockholders' equity on January 1 Common stock-$10 par value, 120,000 shares authorized, 50,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $50, een 75,000 410.000 $ 985,000 During the year, the following transactions affected its stockholders' equity accounts Jan. 2 Purchased 5. see shares of its own stock at $23 cash per share. Jan. 5 Directors declared a $2 per share cash dividend payable on February 28 to the February 5 stockholders of record. Feb. 28 Paid the dividend declared on January 5. July 6 Sold 1.900 of its treasury shares at $27 cash per share. Aug. 22 Sold 3,100 of its treasury shares at $20 cash per share. Sept. 5 Directors declared 52 per share cash dividend payable on October 28 to the September 25 stockholders of record. Oct. 28 Paid the dividend declared on September 5. Dec. 31 Closed the $312,50e credit balance (froe net income) in the Income Summary account to Retained Earnings. Requirement General Journal General Ledger Trial Balance Statement of RE Stockholders Equity Impact on Equity During the year, the following transactions affected its stockholders' equity accounts. Prepare the necessary journal entries. If no journal entry is required, select "No journal entry required in the first input box View transaction list View journal entry worksheet No Date Jan 02 Account Title reasury stock Common Cash Debit 115.000 Credit Jan 05 72 000 72.000 Common dividend payable .000

Answer 1

Treasury Stock : It is the stock which is reacquired by the company and has not been retired.When the treasury stock is issued above the cost at which the treasury stock is acquired, the difference between the issue price of treasury stock and cost of treasury stock is credited Paid in Capital Treasury Stock and treasury stock is credited at cost price. When the treasury stock is issued below the cost at which the treasury stock is acquired, the difference between the issue price and cost of treasury stock is debited Paid in Capital Treasury Stock to the amount available in the Paid in Capital Treasury Stock and the remaining is debited to retailed earnings account and treasury stock is credited at cost price.

Date	Account Title	Debit	Credit
Jan 2	Treasury Stock	$        115,000		[5000 x $23]
	Cash		$        115,000
	(To record purchase of treasury stock)
Jan 5	Retained Earnings	$          90,000		[(50000-5000) x 2]
	Common Dividend payable		$          90,000
	(To record declaration of dividend)
Feb 28	Common Dividend payable	$          90,000
	Cash		$          90,000
	(To record payment of dividend)
July 6	Cash	$          51,300		[1900 x $27]
	Paid in Capital - Treasury Stock		$            7,600	[1900 x $4]
	Treasury Stock		$          43,700	[1900 x $23]
	(To record reissue of treasury sock)
Aug 22	Cash	$          62,000		[3100 x $20]
	Paid in Capital - Treasury Stock	$            7,600
	Retained Earnings	$            1,700
	Treasury Stock		$          71,300	[1900 x $23]
	(To record reissue of treasury sock)
Sep 5	Retained Earnings	$        100,000		[50000 x 2]
	Common Dividend payable		$        100,000
	(To record declaration of dividend)
Oct 28	Common Dividend payable	$        100,000
	Cash		$        100,000
	(To record payment of dividend)
Dec 31	Income Summary	$        312,500
	Retained Earnings		$        312,500
	(To close the income summary account)