Question

In 20X4, Seda Corp. acquired 6,000 shares of its $1 par value common stock at $36 per share. During 20X5, Seda issued 3,000 of these shares at $50 per share. Seda uses the cost method to account for its treasury stock transactions.What accounts and amounts should Seda credit in 20X5 to record the issuance of the 3,000 shares?

Answer 1

Answer:

Treasury stock is $108,000

Additional paid-in capital is $42,000

Explanation:

In the cost method, when the treasury stock which is re-issued at the price that is in excess or more of its cost, then the additional or extra paid- in capital from the treasury stock is credited against the difference.

The journal entry which is to be recorded as:

Cash A/c..................................Dr $150,000

     Treasury stock A/c........................... Cr $ 108,000

     Additional paid-in capital A/c.........Cr $42,000

Working Note:

Additional paid-in capital from transactions of treasury stock = (3,000 × $50) - (3,000 × $36)

= $150,000 - $108,000

= $42,000