QUESTION 8Dallas Corporation purchased 300 shares of its own $10 par value common stock for $7,500. Later, these shares are sold for $8,000 cash. The journal entry to record the sale includes a: A.$500 increase to Paid-in Capital from Treasury Stock B.$500 increase to Gain on Sale of Treasury Stock C.$4,800 increase to Paid-in Capital from Treasury Stock D.$500 to Loss on Sale of Treasury Stock

Introduction Treasury stock: Treasury stock is the company’s its own stock which company purchases from outstanding shares in the market. Company may decide to retire these shares or choose to hold them for resale in future dates. Treasury stock is the difference between issued stock and outstanding stock. Company buy back its shares when it has large amount of ideal cash and market value per share is low. When treasury stock is purchased, if we do not know par value, stock is valued at cost price otherwise valued at par value. So entries on purchase and sale of treasury stock at cost price as follows. Treasury stock A/c DR [at cost price] To cash A/c When it is sold, if sale value is more than cost price then profit on sale is credited to additional paid in capital on sale and if sale value is less than cost price then loss on sale is debited to additional paid in capital on sale. Cash A/c DR Additional paid in capital on sale [if loss] DR To Treasury stock A/c To Additional paid in capital on sale [if profit] Here Dallas Corporation purchased 300 shares of its own $10 par value common stock for $7,500. Journal entry as per cost price is as follows: Treasury stock A/c DR [at cost price] $7,500 - To cash A/c - $7,500 These shares are sold for $8,000 cash. Cost price is $7,500 and sale price is $8,000. Hence profit on sale is [$8,000 - $7,500] $500. $500 is credited to additional paid in capital. Journal entry on sale is as follows: Cash A/c DR $8,000 - To Treasury stock A/c - $7,500 To Additional paid in capital on sale [profit] $500 Hence, option “A” $500 increase to Paid-in Capital from Treasury Stock is correct answer.

Answered: Dallas Corporation purchased 300 shares…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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QUESTION 8

Dallas Corporation purchased 300 shares of its own $10 par value common stock for $7,500. Later, these shares are sold for $8,000 cash. The journal entry to record the sale includes a:

	A.	$500 increase to Paid-in Capital from Treasury Stock
	B.	$500 increase to Gain on Sale of Treasury Stock
	C.	$4,800 increase to Paid-in Capital from Treasury Stock
	D.	$500 to Loss on Sale of Treasury Stock

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