Q25E_1 - Horngren'S Financial And Managerial Accounting

Question

Journalizing treasury stock transactions and reporting stockholders’ equity

Southern Amusements Corporation had the following stockholders’ equity on 

November 30:

Paid-In Capital:

Common Stock—\(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders’ Equity \) 55,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

1. Journalize the purchase of the treasury stock.

Step-by-Step Solution

Answer

Treasury stock will be debited with $3,000 and Cash will be credited with $3,000.

Step 1: Computation

$\begin{array}{rcl}\mathbf{TreasuryStock}& \mathbf{=}& \mathbf{NumberofStocks}\mathbf{\times }\mathbf{ValuePerShare}\\ & \mathbf{=}& \mathbf{200}\mathbf{\times }\mathbf{\$}\mathbf{15}\\ & \mathbf{=}& \mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\\ & & \end{array}$

Step 2: Journal entry of purchase of treasury stock

 

Date	Transaction	Debit	Credit
Dec 30	Treasury stock	$3,000
	Cash		$3,0000
	To record purchase of treasury stock