Question

Coy, Inc. initially issued 250,000 shares of $1 par stock for $1,250,000 in 2019. In 2020, the company repurchased 25,000 shares for $250,000. In 2021, 12,500 of the repurchased shares were resold for $200,000. In its balance sheet dated December 31, 2021, Coy, Inc.'s treasury stock account shows a balance of:_______

Answer 1

Answer:

Coy,Inc.s' treasury stock account would show a balance of $125,000

Explanation:

The first to do is to establish the cost per share of treasury stock

cost per share of treasury stock=cash paid for repurchase/number of shares repurchased.

cash paid for repurchase is $250,000

number of shares repurchased is 25,000

cost per share of treasury stock=$250,000/25,000=$10

The balance of treasury stock=amount paid to repurchase-(cost per share of treasury stock*treasury stock sold)

the balance  of treasury stock=$250,000-($10*12,500)=$125,000

Answer 2

Answer:

Coy, Inc.

Treasury Stock Account Balance:

a) $50,000 if the costing method is used.

b) $12,500 if the par value method is used.

Explanation:

The treasury stock account is a contra account to the common stock account.  This implies that the treasury stock account reduces the common stock account.  It is a debit-balance account.

There are two methods for recognizing transactions involving Treasury Stock.  The first is the cost method.  This method recognizes all transactions in total in the Treasury Stock account without differentiating between par value and the market value or cost.

The second method recognizes transactions in the Treasury Stock account based on the par value.  Therefore, the difference between the market value and the par value is taken to Additional Paid-in Capital.

The treasury stock account will show different balances depending on the method adopted.  However, the net effect on the equity is the same.