Question

On January 1, 2018, equity account balances are as follows: Preferred Stock $ 500,000 Common Stock 1,000,000 Paid-In Capital in Excess of Par - Preferred 200,000 Paid-In Capital in Excess of Par - Common 500,000 Paid-In Capital From Treasury Stock 20,000 Retained Earnings 1,500,000 Treasury Stock (25,000 shares purchased 3/15/17) 762,500 On January 15, 2018, 10,000 shares of treasury stock are sold at $15 per share. The entry to record this transaction includes a Select one: a. debit to Paid-In Capital From Treasury Stock of $155,000 b. debit to Retained Earnings of $135,000 c. debit to Paid-In Capital From Treasury Stock of $150,000 d. debit to Retained Earnings of $155,000 e. debit to Paid-In Capital From Treasury Stock of $135,000

Answer 1

Answer:

a. debit to Paid-In Capital From Treasury Stock of $155,000

Explanation:

Treasury Stock purchase 25,000 shares = $762,500

Per share value = $762,500/25,000 shares

Per share value = $30.5

Selling price of 10,000 treasury stock = $15 × 10,000 = $150,000

Purchase price of 10,000 treasury stock = $30.5 × 10,000 = $305,000

The deference between sales and purchase of treasury stock = $155,000

Therefore, option A is the answer because paid-In Capital From Treasury Stock becomes a debit due to selling the stock in low price.