Question

A company has 10,000 shares of $10 par common stock outstanding. Prepare entries to record the following: (a) Purchased 1,500 shares of treasury stock at $16. The treasury stock is accounted for by the cost method. There were no previous purchases of treasury shares. (b) Sold 1,000 shares of treasury stock at $19. (c) Purchased equipment for $80,000, paying $25,000 in cash and issuing 4,000 shares of common stock for the remaining. (d) Sold 500 shares of treasury stock at $14.

Answer 1

Answer:

Treasury Stock          24,000

              Cash                           24,000

to record puchase of own shares (A)

Cash                           19,000

      Threasury Stock               16,000

      Additional Paid-in TS        3,000

to record reissued shares aboe their price (B)

equipment               80,000

       Cash                               25,000

      Common Stock              40,000

       Additional Paid-in          15,000

to record purchase of equipment (C)

Cash                                   7,000

Additional Paid-in TS         1,000

             Treasury Stock                  8,000

to record reissued shares below their price (D)

Explanation:

(A) under cost method, treasury stock enter the accounting at their cost.

Inthis case is 1,500 shares times $16

(B) When reissued above their cost the shares will generate a additional paid in

Cost:

1,000 shares x $16 = 16,000

Sales price:

1,000 shares x $19 = 19,000

Difference:

19,000 - 16,000 = 3,000

(C) The equipment enter the accounting for his cost. Because, the face value of the stock is not enought for the equipment, we recognize an additional paid-in

equipment 80,000

cash           (25,000)

common stock

4,000 x 10  (40,000)

Subtotal       15,000

To cover this we use the additional paid-in

(D) We decrease the additional paid-in for the diference between cash proceeds and the treasury stock:

cash       14 x 500 = 7,000

Ts           16 x 500 =(8,000)

We decrease the previous additional paid-in TS declare on (B)