A company is 49% financed by risk-free debt. The interest rate is 8%, the expected market risk premium is 6%, and the beta of th
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Answer:
Cash A/c Dr. 400 $12 = $4,800
To Treasury Stock A/c 400 $10 = $4,000
To Additional Paid In Capital 400 $2 = $800
(Sale of treasury stock, on premium of $2)
Explanation:
When originally the treasury stock was purchased then the entry would be:
Treasury Stock A/c Dr. 1,000 $10
Cash A/c $10,000
Recording purchase of treasury stock.
Now when the stock is sold for $12 each, then the amount of $2 = $12 - $10 = Additional Paid in Capital.
Therefore entry will be:
Cash A/c Dr. 400 $12 = $4,800
To Treasury Stock A/c 400 $10 = $4,000
To Additional Paid In Capital 400 $2 = $800
Sale of treasury stock, on premium of $2