Question

Bonita Industries acquired 21600 shares of its own common stock at $22 per share on February 5, 2020, and sold 10800 of these shares at $29 per share on August 9, 2021. The fair value of Bonita's common stock was $26 per share at December 31, 2020, and $27 per share at December 31, 2021. The cost method is used to record treasury stock transactions. What account(s) should Bonita credit in 2021 to record the sale of 10800 shares

Answer 1

Answer: Treasury Stock Account and Paid-in Capital from Treasury Stock Account.

Explanation:

The two accounts to be credited in 2021 would be the Treasury Stock Account for $237,600 and the Additional Paid-in Capital from Treasury Stock for $75,600.

As a result of the cost method being used, the Treasury Stock account must be recorded at cost.

The 10,800 shares were purchased at $22.

= 10,800 * 22

= $237,600.

So $237,600 has to be credited from the Treasury Account.

However the amount realised was more as the stock was sold at $29. The difference therefore would go into the Additional Paid-in capital from Treasury Stock Account.

= 10,800 * ( 29 - 22)

= $75,600.

= 75,600 + 237,600

= $313,200

This $313,200 will be debited to the Cash Account.