The journal entry, to record the sale of the treasury shares on February 1, would include:
a) debit to a loss account for $112,500
b) credit to Treasury Stock for $90,000
c) credit to a gains account for $112,500
d) debit to Treasury Stock for $90,000
Answer:
Option D Debit to Treasury Stock for $90,000
Explanation:
The journal entry of repurchase of treasury stock is as under:
Dr Treasury Stock $90,000
Cr Cash $90,000
As the treasury stock has been purchased for cash, the cash has been decreased and the decrease in treasury stock is credit in nature. Hence the decrease in stock is shown as debit and decrease in cash is shown as credit.
The rate as which the stock is purchased is the price at which treasury stock will be debited = Treasury shares purchased × Fair Value per Share
= 3,750 shares × $24
= $90,000
