Question

On December 2, Coley Corp. acquired 1,600 shares of its $3 par value common stock for $21 each. On December 20. Coley Corp. reissued 1,200 shares for $11 each. Which of the following is correct regarding the journal entry for the reissued shares?(A) Credit Additional Paid in Capital $9,600(B) Credit Treasury Stock $25,200(C) Debit Cash $17,600(D) Credit Treasury Stock $13,200

Answer 1

Answer:

(A) Credit Additional Paid in Capital $9,600

Explanation:

As provided earlier, shares of own company were acquired, at a premium, which creates a treasury account with the amount of purchase back of shares.

This is because of the amount paid towards purchase that is for the amount received on purchase.

Further when shares are resold the paid in capital account is credited,

Additional capital to be credited = $11 - $3 = $8 per share

$8 $\times$ 1,200 shares = $9,600

With this amount the balance of additional capital will increase, and thus this account will be credited.

If there is any reversal to treasury stock it will be treasury stock account debit, thus option b) and option d) are completely invalid.

Further cash received = $11 $\times$ 1,200 = $13,200 and not $25,200

Therefore option c) is also invalid.

Therefore, Correct option is

(A) Credit Additional Paid in Capital $9,600