Question

The Vernon Corporation was formed on January 2, 2018. The company sold 20,000 shares of $8.00 par value stock for $20.00 per share. On July 1, 2018, Vernon bought back 4,000 shares of stock for $24.00 per share. The treasury stock was resold on September 1, 2018 for $32.00 per share.
Which one of the following is the correct entry to record the resale of treasury stock?
Multiple Choice
A) DR Cash 128,000 CR Common stock 128,000
B) DR Cash 128,000 CR Treasury stock 96,000 CR Paid-in capital from treasury stock 32,000
C) DR Cash 128,000 CR Treasury stock 96,000 CR Gain on sale of treasury stock 32,000
D) DR Cash 128,000 CR Treasury stock 96,000 CR Retained earnings 32,000

Answer 1

Answer:

B) DR Cash 128,000 CR Treasury stock 96,000 CR Paid-in capital from treasury stock 32,000

Explanation:

Based on the information given the correct journal entry to record the resale of treasury stock is to Debit Cash $128,000 Credit Treasury stock $96,000 and Credit Paid-in capital from treasury stock $32,000

DR Cash $128,000

(4000*$32)

CR Treasury stock $96,000

(4000*$24)

CR Paid in capital in excess of par $32,000

(4000*$8)