Answer:
Bargain Central Furniture, Inc.
R1) Journal entries:
a) Debit Treasury Stock with $1,300
Debit Additional Paid-in Capital with $6,500
Credit Cash Account with $7,800
To record purchase of 1,300 shares of common stock, $1 par at $6 per share.
b) Debit Cash Account with $6,300
Credit Treasury Stock with $700
Credit Additional Paid-in Capital with $5,600
To record resale of 700 shares for $9 per share.
R2) Bargain Central Furniture, Inc.
Balance Sheet as at December 31, 2010:
Treasury Stock $600 ($1,300 - $700)
Explanation:
Treasury Stock is a contra account to the Common Stock. It represents the shares of common stock repurchased. Two methods are prevalent in reporting transactions in treasury stock. They are the the cost method, which reports all treasury stock transactions in the Treasury Stock account.
The other method is the par value method. This method reports only the par value transactions of treasury stock in the Treasury Stock account. The above or below par value aspects of each transaction is then taken to the Additional Paid-in Capital account.
