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Journalize treasury stock transactions

Journalize treasury stock transactions

FINANCIAL ACCOUNTING
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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Journalize treasury stock transactions 

### Understanding Treasury Stock Transactions **Overview:** On January 1, 2019, the stockholders' equity section of Smiley Corporation includes: - Common stock ($5 par value): $1,500,000 - Paid-in capital in excess of par value: $1,000,000 - Retained earnings: $1,200,000 During the year, Smiley Corporation conducted several treasury stock transactions as follows: **Transactions:** - **March 1:** Purchased 30,000 shares for cash at $20 per share. - **July 1:** Sold 6,000 treasury shares for cash at $27 per share. - **September 1:** Sold 5,000 treasury shares for cash at $9 per share. **Requirements:** 1. **Journalize the treasury stock transactions.** **Explanation of Transactions:** 1. **March 1 - Purchase of Treasury Stock:** - Smiley Corporation bought back 30,000 shares of its own stock from the public at $20 per share. - This transaction decreases cash and increases treasury stock (a contra-equity account). 2. **July 1 - Sale of Treasury Stock:** - 6,000 shares of the treasury stock were sold at $27 per share. - This sale generates cash and reduces the treasury stock account. The excess received over the purchase cost ($27 - $20 per share) is credited to Paid-in Capital from Treasury Stock. 3. **September 1 - Sale of Treasury Stock:** - 5,000 shares of the treasury stock were sold at $9 per share. - This transaction increases cash and reduces the treasury stock account. The sale at less than the purchase cost ($9 - $20 per share) decreases the Paid-in Capital from Treasury Stock, with any remaining needed to adjust coming from Retained Earnings if necessary. These transactions impact both the balance sheet and specific equity accounts, reflecting changes in the company’s financial position and ownership structure. ### Conclusion Students and readers are encouraged to journalize the mentioned treasury stock transactions by understanding the debits and credits involved in each transaction. This practical example aids in comprehending the process and effects of treasury stock transactions on a company’s financial statements.
Transcribed Image Text:### Understanding Treasury Stock Transactions **Overview:** On January 1, 2019, the stockholders' equity section of Smiley Corporation includes: - Common stock ($5 par value): $1,500,000 - Paid-in capital in excess of par value: $1,000,000 - Retained earnings: $1,200,000 During the year, Smiley Corporation conducted several treasury stock transactions as follows: **Transactions:** - **March 1:** Purchased 30,000 shares for cash at $20 per share. - **July 1:** Sold 6,000 treasury shares for cash at $27 per share. - **September 1:** Sold 5,000 treasury shares for cash at $9 per share. **Requirements:** 1. **Journalize the treasury stock transactions.** **Explanation of Transactions:** 1. **March 1 - Purchase of Treasury Stock:** - Smiley Corporation bought back 30,000 shares of its own stock from the public at $20 per share. - This transaction decreases cash and increases treasury stock (a contra-equity account). 2. **July 1 - Sale of Treasury Stock:** - 6,000 shares of the treasury stock were sold at $27 per share. - This sale generates cash and reduces the treasury stock account. The excess received over the purchase cost ($27 - $20 per share) is credited to Paid-in Capital from Treasury Stock. 3. **September 1 - Sale of Treasury Stock:** - 5,000 shares of the treasury stock were sold at $9 per share. - This transaction increases cash and reduces the treasury stock account. The sale at less than the purchase cost ($9 - $20 per share) decreases the Paid-in Capital from Treasury Stock, with any remaining needed to adjust coming from Retained Earnings if necessary. These transactions impact both the balance sheet and specific equity accounts, reflecting changes in the company’s financial position and ownership structure. ### Conclusion Students and readers are encouraged to journalize the mentioned treasury stock transactions by understanding the debits and credits involved in each transaction. This practical example aids in comprehending the process and effects of treasury stock transactions on a company’s financial statements.
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