Q6SE_2 - Horngren'S Financial And Managerial Accounting

Question

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

2. How will Discount Furniture, Inc. report treasury stock on its balance sheet as of December 31, 2018?

Step-by-Step Solution

Answer

Answer

The company will deduct the treasury stock value from Shareholders’ equity in the balance sheet under the retained earnings of the company.

Step 1: Basic Introduction

Treasury stock refers to the outstanding shares of the company which is buy back by the corporation for allocation of surplus capital or to take control of the company by holding diversified shares.

Step 2: Partial Balance sheet

Shareholder’s equity
Retained Earnings	xxx
Less: Treasury Stock	xxx