Question

Before Cheyenne Corporation engages in the following treasury stock transactions, its general ledger reflects, among others, the following account balances (par value of its stock is $30 per share). Paid-in Capital in Excess of Par—Common Stock Common Stock Retained Earnings $99,000 $296,100 $76,300 Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (a) Bought 400 shares of treasury stock at $40 per share. (b) Bought 290 shares of treasury stock at $45 per share. (c) Sold 370 shares of treasury stock at $42 per share. (d) Sold 110 shares of treasury stock at $38 per share.

Answer 1

Answer:

a) Bought 400 shares of treasury stock at $40 per share:

Dr Treasury stock                       16,000

Cr Cash                                       16,000

( to record the repurchased of 400 shares at $40 each)

b) Bought 290 shares of treasury stock at $45 per share:

Dr Treasury stock                       13,050

Cr Cash                                       13,050

( to record the repurchased of 290 shares at $45 each)

c) Sold 370 shares of treasury stock at $42 per share:

Dr Cash                                                15,540

Cr Common stock                               14,800

Cr Paid-in capital - common stock     740

( to record the sell of 370 shares repurchased at selling price of $42)

d) Sold 110 shares of treasury stock at $38 per share:

Dr Cash                                                4,180

Dr  Paid-in capital - common stock    620

Cr Common stock                               4,800

( to record the sell of 110 shares repurchased at selling price of $38)

Explanation:

a)

Following  repurchased of 400 shares at $40 each, cash account goes down (Cr) by 40 x 400 = $16,000; Treasury account will go up (Dr) by the same amount.

b)

Following  repurchased of 290 shares at $45 each, cash account goes down (Cr) by 290 * 45 = $13,050; Treasury account will go up (Dr) by the same amount.

c)

As FIFO apply, the selling of 370 repurchased stock will make the Common stock account goes up (Cr) by 40 x 370 = 14,800; Cash account goes up (Dr) by 370 x 42 = $15,540; the difference of 740 will go into (Cr) Paid-in capital - common stock.

d)

As FIFO apply, the selling of 110 repurchased stock will make the Common stock account goes up (Cr) by 30 x 40 + (110-30) * 45 = $4,800; Cash account goes up (Dr) by 110 x 38 = $4,180; the difference of 620 will go into (Dr) Paid-in capital - common stock.