Answer:
Sherman Systems
1. Journal Entries
Debit Credit
a) October 11:
Treasury Stock $68,000
Additional Paid-in Capital $224,400
Cash $292,400
To record purchase of 6,800 shares at $43 per share.
b) November 1:
Cash $71,050
Treasury Stock $14,500
Additional Paid-in Capital $56,550
To record sale of 1,450 treasury shares at $49 per share.
c) November 25:
Cash $203,300
Treasury Stock $53,500
Additional Paid-in Capital $149,800
To record sale of 5,350 treasury shares at $38 per share.
2. Revised Equity Section of Sherman Systems' Balance Sheet as at October 11:
Common stock at“$10 par value,
90,000 shares authorized, issued, and outstanding $ 900,000
Paid-in capital in excess of par value, common stock 81,600
Treasury Stock (68,000)
Retained earnings 1,008,000
Total stockholders' equity $1,921,600
Explanation:
1. Additional Paid-in Capital:
Balance on October 10 $306,000
Treasury Stock ($224,400)
Balance on October 11 $81,600
2. Treasury Stock is a contra account to Common Stock. It represents the purchase of its own shares by a company. There are two methods for accounting for treasury stock. One is the par value method, where the adjustments for above or below par value are made in the Additional Paid-in Capital account. The other method is the costing method, where the adjustments for above or below par value are made in the Treasury stock.
3. The equity section prepared above is limited to the October 11 transaction. The transactions occurring on November 1 and 25 were not required by the question.
4. The remaining shares of the treasury stock reissued on November 25 is equal to 6,800 - 1,450 = 5,350 shares.
