a. Explanation Treasury Stock : It is the type of stock that company keeps with itself either by not issuing the shares or by buying back of shares Journalizing: Journalizing is the process which includes recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger accounts. Accounting rules for journal entries: To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains. To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains. Repurchase of treasury stock: Date Account Title and Explanation Post ref Debit ($) Credit ($) Treasury stock 240,000 Cash 240,000 (Being treasury stock repurchased) Table (1) Treasury stocks are equity. Since, own equity is purchased, it reduces equity. Hence, debit treasury stocks account. Cash is an asset. Since, cash is used to purchase treasury stock, it reduces asset. Hence, credit cash account. Working Note: Calculation of amount of treasury stock, Treasury stock = Number of shares repurchased × Purchase price = 15 , 000 share × $ 16 = $ 240 , 000 Some of the treasury stock reissued. Date Account Title and Explanation Post ref Debit ($) Credit ($) July 9 Cash 91,200 Treasury stocks 76,800 Paid in capital in excess of par value, treasury stock 14,400 (Being treasury stock reissued) Table (2) Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account. Treasury stock is equity. Since, shares is issued, it increases equity. Hence, credit treasury stock account. Paid in capital in excess of par value, treasury stock is part of a shareholder’s fund. Since, money is received, it increases equity. Hence, credit paid in capital in excess of par value, treasury stock. Working Note: Calculation of amount of cash, Cash = Number of shares issued × Selling price = 4 , 800 share × $ 19 = $ 91 , 200 Calculation of amount of treasury stock, Treasury stock = Number of shares issued × Purchase price = 4 , 800 share × $ 16 = $ 76 , 800 Some of the treasury stock reissued. Date Account Title and Explanation Post ref Debit ($) Credit ($) Cash 57,600 Paid in capital in excess of par value, treasury stock 14,400 Retained Earnings 43,200 Treasury stocks 115,200 (Being dividend is paid ) Table (3) Cash is an asset b. To determine To prepare: The statement of shareholders equity at the end of the year.

1st Edition

ISBN: 9780132162302

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 15, Problem 15.5E

To determine

To prepare: Journal entry.

To determine

To prepare: The statement of shareholders equity at the end of the year.

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Chapter 15, Problem 15.4E

Chapter 15, Problem 15.6E

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Journal entry .

Solution Summary: The author explains the accounting rules for journal entries, which include recording the transactions of an organization in a chronological order.