On March 22, 2023, Amelia, Inc., purchased 500 shares of its own common stock in the market for $21 per share. On May 19, 2023, the company sold 300 of these shares in the open market at a price of $24 per share. Required: Use the horizontal model (or write the entry) to show the effects on Amelia, Inc.'s financial statements of: a). The purchase of the treasury stock on March 22, 2023. b). The sale of the treasury stock on May 19, 2023.
On March 22, 2023, Amelia, Inc., purchased 500 shares of its own common stock in the market for $21 per share. On May 19, 2023, the company sold 300 of these shares in the open market at a price of $24 per share. Required: Use the horizontal model (or write the entry) to show the effects on Amelia, Inc.'s financial statements of: a). The purchase of the treasury stock on March 22, 2023. b). The sale of the treasury stock on May 19, 2023.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![### Understanding Treasury Stock Transactions: Amelia, Inc. Case Study
#### Background:
On March 22, 2023, Amelia, Inc. purchased 500 shares of its own common stock in the market for $21 per share. On May 19, 2023, the company sold 300 of these shares in the open market at a price of $24 per share.
#### Required:
Use the horizontal model (or write the entry) to show the effects on Amelia, Inc.'s financial statements of:
a) The purchase of the treasury stock on March 22, 2023.
b) The sale of the treasury stock on May 19, 2023.
---
#### a) The Purchase of the Treasury Stock on March 22, 2023:
**Explanation:**
When Amelia, Inc. purchases its own stock, it is recorded as Treasury Stock, a contra equity account, and reduces stockholders’ equity.
**Journal Entry:**
\[
\begin{align*}
\text{Date: March 22, 2023} \\
\text{Treasury Stock} & \text{Dr.} \quad 10,500 \quad \text{(500 shares * $21)} \\
\text{Cash} & \text{Cr.} \quad 10,500
\end{align*}
\]
**Horizontal Model:**
\[
\begin{array}{|c|c|c|c|c|c|}
\hline
\text{Assets} & \text{=} & \text{Liabilities} & \text{+} & \text{Stockholders' Equity} & \text{(Contra Equity)} \\
\hline
- \$10,500 & & & & - \$10,500 & \\
\hline
\end{array}
\]
---
#### b) The Sale of the Treasury Stock on May 19, 2023:
**Explanation:**
When Amelia, Inc. sells some of the treasury stock at a price higher than the purchase price, it recognizes the difference as Additional Paid-In Capital (APIC) from Treasury Stock Transactions.
**Journal Entry:**
\[
\begin{align*}
\text{Date: May 19, 2023} \\
\text{Cash} & \text{Dr.} \quad 7,200 \quad \text{(300 shares *](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3f0128e8-6553-498c-afa0-dd14e88e258d%2F8927d24f-0ed0-4bab-a782-2e55dcf6fd99%2Fd5i0dd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Understanding Treasury Stock Transactions: Amelia, Inc. Case Study
#### Background:
On March 22, 2023, Amelia, Inc. purchased 500 shares of its own common stock in the market for $21 per share. On May 19, 2023, the company sold 300 of these shares in the open market at a price of $24 per share.
#### Required:
Use the horizontal model (or write the entry) to show the effects on Amelia, Inc.'s financial statements of:
a) The purchase of the treasury stock on March 22, 2023.
b) The sale of the treasury stock on May 19, 2023.
---
#### a) The Purchase of the Treasury Stock on March 22, 2023:
**Explanation:**
When Amelia, Inc. purchases its own stock, it is recorded as Treasury Stock, a contra equity account, and reduces stockholders’ equity.
**Journal Entry:**
\[
\begin{align*}
\text{Date: March 22, 2023} \\
\text{Treasury Stock} & \text{Dr.} \quad 10,500 \quad \text{(500 shares * $21)} \\
\text{Cash} & \text{Cr.} \quad 10,500
\end{align*}
\]
**Horizontal Model:**
\[
\begin{array}{|c|c|c|c|c|c|}
\hline
\text{Assets} & \text{=} & \text{Liabilities} & \text{+} & \text{Stockholders' Equity} & \text{(Contra Equity)} \\
\hline
- \$10,500 & & & & - \$10,500 & \\
\hline
\end{array}
\]
---
#### b) The Sale of the Treasury Stock on May 19, 2023:
**Explanation:**
When Amelia, Inc. sells some of the treasury stock at a price higher than the purchase price, it recognizes the difference as Additional Paid-In Capital (APIC) from Treasury Stock Transactions.
**Journal Entry:**
\[
\begin{align*}
\text{Date: May 19, 2023} \\
\text{Cash} & \text{Dr.} \quad 7,200 \quad \text{(300 shares *
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