Question

On October 1, 2017, Adoll Company acquired 2,900 shares of its $1 par value stock for $35 per share and held these shares in treasury. On March 1, 2019, Adoll resold all the treasury shares for $31 per share. Which of the following entries would be recorded when Adoll Company resells the shares of treasury stock?
a.
Cash Additional 89,900
Paid-in capital Common Stock 11,600
Common Stock 101,500
b.
Cash 89,900
Loss on sale of treasury stock 11,600
Treasury Stock 101,500
c.
Cash 89,900
Additional paid-in capital 11,600
Treasury Stock 101,500
d.
Cash 89,900
Common Stock 2,900
Additional paid-in capital 87,000

Answer 1

Answer:

The answer is c.

Dr Cash Additional 89,900 ;

Dr Paid-in capital Common Stock 11,600

Cr Treasury stock 101,500

Explanation:

We have the Treasury stock account has a Debit balance of 35 x 2,900 = $101,500 post resold. As the resold take place, this account should be cleared to 0. Thus, we credit this account by $101,500;

Cash receipt is 31 x 2,900 = $89,900. Thus, we debit Cash account by the same amount.

The difference 11,600 ( 101,500 - 89,900) will be debited into Paid-in capital common stock account; assuming that after the Debit entry is made, the account still have the Credit balance. Otherwise, the excessive Debit amount that made Paid-in capital account's balance less than 0 Credit will be Debit into Retained Earnings account.