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 of 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. Purchased treasury stock: Date Account Title and Explanation Post ref Debit ($) Credit ($) Treasury stock 165,000 Cash 165,000 (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. Calculation of amount of cash, Cash = Number of shares issued × Selling price = 20 , 000 share × $ 8.25 = $ 165 , 000 Some of the treasury stock sold: Date Account Title and Explanation Post ref Debit ($) Credit ($) Cash 115,000 Paid in capital in excess of par value, treasury stock 32,500 Treasury stock 82,500 (Being treasury stock sold) Table (2) Cash is an asset. Since, cash is received, it increases asset. Hence debit cash 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. Treasury stock is equity. Since, shares is issued, it increases equity. Hence, credit treasury stock account. Working note: Calculation of amount of cash: Cash = Number of shares issued × Selling price = 10 , 000 share × $ 11.50 = $ 115 , 000 Calculation of amount of treasury stock: Treasury stock = Number of shares issued × Purchase price = 10 , 000 share × $ 8

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ISBN: 9780132162302

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

Publisher: PEARSON

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Chapter 15, Problem 15.9E

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Intermediate Accounting

Ch. 15 - Prob. 15.1Q Ch. 15 - What are the retained earnings of a firm?Ch. 15 - Prob. 15.3Q Ch. 15 - Prob. 15.4Q Ch. 15 - Does an entity have to legally dissolve treasury...Ch. 15 - Prob. 15.6Q Ch. 15 - Prob. 15.7Q Ch. 15 - Prob. 15.8Q Ch. 15 - Prob. 15.9Q Ch. 15 - Prob. 15.10Q

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