Question

In Year 1, Rona Corp. issued 5,000 shares of $10 par value common stock for $100 per share. In Year 7, Rona reacquired 2,000 shares at $150 per share from the estate of one of its deceased officers and immediately canceled these 2,000 shares. Rona uses the cost method in accounting for its treasury stock transactions. In connection with the retirement of these 2,000 shares, Rona should debit
A. APIC $20,000; R/E $280,000

B. APIC $100,000; R/E $180,000

C. APIC $280,000; R/E $0

D. APIC $180,000; R/E $100,000

Answer 1

Answer:

D. APIC $180,000; R/E $100,000

Explanation:

Treasury stock is the share of the company issued earlier and bought-back. It can be reissued and cancelled by the company.

Journal Entry for Reacquirement of shares

Dr.  Treasury Stcok (2,000 x $150 )   $300,000

Cr.  Cash                                              $300,000

Cancellation of Treasury shares

Dr. Common Shares ( 2,000 x $10    )               $20,000

Dr.  APIC -Common share (2,000 (100-10))       $180,000

Dr. Retained Earning                                           $100,000

Cr. Treasury Stock                                               $300,000