Answer:
<u>Transaction 1</u>
Assets - Decrease by $225,000
Cash expended to acquire shares = 5,000 * 45 = $225,000
Liabilities - No effect
Stockholders' equity - Decrease by $225,000
Increase in Treasury shares leads to decrease in the amount stockholders hold.
Paid In Capital - No effect
Retained Earnings - No Effect
Net Income - No Effect
<u>Transaction 2</u>
Assets - Increase by $98,000
Cash increased because of sale of stock = 2,000 * 49 = $98,000
Liabilities - No effect
Stockholders' equity - Increase by $90,000
= 2,000 * 45 = $90,000
Cost method means that when debiting from Treasury account, use original cost.
Paid In Capital - Increase by $8,000
If stock is sold for amount different from what it was bought, it goes into this account. If it is larger than it was bought for then this account increases and vice versa.
Retained Earnings - No Effect
Net Income - No Effect
<u>Transaction 3</u>
Assets - Increase by $20,000
Cash from sale of stock = 500 * 40 = $20,000
Liabilities - No effect
Stockholders' equity - Increase by $22,500
= 500 * 45 = $22,500
Paid In Capital - Decrease by $2,500
If stock is sold for amount different from what it was bought, it goes into this account. If it is smaller than it was bought for then this account decreases and vice versa.
Retained Earnings - No Effect
Net Income - No Effect
