Answer:
Washington Company:
a) Journal:
1. Debit Treasury Stock with $27,160
Credit Cash with $27,160
To record purchase of outstanding stock at $97 per share.
2. Debit Retained Earnings with $90,400
Credit Dividends Payable with $90,400
To record a $20 per share cash dividend declared on outstanding shares (4,800 - 280 = 4,520)
3. Debit Dividends Payable with $90,400
Credit Cash with $90,400
To record cash payment of dividends.
4. Debit Cash with $28,560
Credit Treasury Stock with $28,560
To record resale of 280 treasury stock at $102 per share.
5. Debit Treasury Stock with $52,500
Credit Cash with $52,500
To record purchase of 500 shares at $105 per share.
6. Debit Cash with $33,600
Credit Treasury Stock with $33,600
To record resale of 350 treasury stock at $96 per share.
b) Stockholders' Equity Section:
Common Stock ($100 par value, authorized 8,000 shares) = $480,000
Retained Earnings ($294,000 + $94,000 - $90,400) = $297,600
Less Treasury Stock 150 shares = $17,500
Total Equity = $760,100
Explanation:
a) The cost method for reporting Treasury Stock requires that all treasury stock transactions are recorded between the Treasury Stock and the Cash Account.
It is unlike the par value method where the differences in par value and repurchase and resale prices are taken to the Additional Paid-in Capital and only the par values or repurchase and resale are accounted for in the Treasury Stock.
b) The balance in the Treasury Stock was calculated as follows, using the cost method:
1. Repurchase of 280 at $97 = $27,160
4. less Resale of 280 at $102 = ($28,560)
5. Repurchase of 500 at $105 = $52,500
6. less Resale of 350 at $96 = ($33,600)
Total = 150 shares valued at $17,500
c) Retained Earnings balance was calculated as follows:
Opening Balance = $294,000
Add Net Income = $94,000
Less Dividends = ($90,400)
Closing Balance = $297,600
d) Dividends = 4,800 - 280 = 4,520 x $20 = $90,400
