Question

California Surf Clothing Company issues 1,000 shares of $1 par value common stock at $17 per share.Later in the year, the company decides to repurchase 100 shares at a cost of $20 per share.Required:Record the transaction if California Surf reissues the 100 shares of treasury stock at $22 per share.Treasury Stock:When a company needs to raise capital, management may issue stock in exchange for cash or property. Alternatively, after these stocks have been issued, management may wish to repurchase the previously issued shares. These repurchased stocks are called treasury stock. Treasury stock is recorded under stockholders' equity as a contra-equity account, meaning that the account has a normal debit balance.

Answer 1

Answer:

The transaction if California Surf reissues the 100 shares of treasury stock at $22 per share is as followed:

Dr Cash                                                                          2,200

Cr Treasury Stock                                                        2,000

Cr Additional Paid-in capital ( Treasury stock)           200

Explanation:

The total cash receipt from the reissue is : Total shares reissued x Price per share at reissue = 100 x 22 = $2,200;

The Treasury Stock account will be decreased ( Credit) by 2,000 calculated as Total share reissued x repurchased price = 100 x 20 = $2,000;

The Additional Paid-in capital will be credit in case reissued price is higher than repurchased price or be debited when reissued price is lower than repurchased price. The absolute amount of credit/debit will be decided as Total share reissued x Difference between reissued price and repurchased price. In this case, Additional Paid-in capital is credited ( increased) by the amount of 100 x (22 - 20) = $200.