Q6SE_1 - Horngren'S Financial And Managerial Accounting

Question

Accounting for the purchase and sale of treasury stock

Discount Furniture, Inc. completed the following treasury stock transactions in 2018:

Dec. 1 Purchased 1,900 shares of the company’s \(1 par value common stock as treasury stock, paying cash of \)5 per share.

15 Sold 200 shares of the treasury stock for cash of \(8 per share.

20 Sold 1,000 shares of the treasury stock for cash of \)1 per share. (Assume the balance in Paid-In Capital from Treasury Stock Transactions on December 20 is $2,400.)

Requirements

1. Journalize these transactions. Explanations are not required.

Step-by-Step Solution

Answer

On dec 1- Treasury stock- common will be debited and cash will be credited with $11,200

On dec 15- Cash will be debited $2,000; Treasury stock- common $1,400 and Paid-In Capital from Treasury Stock $900 will be credited

On dec 20- Cash $2,100, Paid-In Capital from Treasury Stock $2,100, and Retained Earnings $700 will be debited and Treasury Stock-Common $4,900 will be credited

Step 1: Basic Introduction-

Working note:

 

Treasury Stock - Common $11,200($ 7 per share x 1 comma 600 shares)

Cash $2,000($ 10 per share x 200 shares)

Treasury Stock-Common $1,400($ 7 per share x 200 shares)

Paid-In Capital from Treasury Stock $600 (($ 10 dash $ 7) per share x 200 shares) 

Cash $2,100($ 3 per share x 700 shares) 

Paid-In Capital from Treasury Stock$2,100($ 3 per share x 700 shares)

Retained Earnings $700 ($4900- $ 2100- $2100) 

Treasury Stock-Common $4,900 ($ 7 per share x 700 shares) 

 

Step 2: Journals-

Date	Transaction	Debit	Credit
Dec. 1	Treasury Stock - Common	$11,200
	Cash		$11,200
Dec. 15	Cash	$2,000
	Treasury Stock—Common		$1,400
	Paid-In Capital from Treasury Stock		$600
Dec. 20	Cash	$2,100
	Paid-In Capital from Treasury Stock	$2,100
	Retained Earnings	$700
	Treasury Stock-Common		$4,900