Question

Treasury Stock

The Stockholders' Equity section of Preston Enterprises' balance sheet on January 1, 2017, appeared as follows:

Common stock, $10 par, 10,000 shares issued and outstanding	$100,000
Additional paid-in capital	50,000
Retained earnings	80,000
Total stockholders’ equity	$230,000

Required:

1. Identify and analyze the effect of each transaction.

The following transactions occurred during 2017:
a. Reacquired 1,400 shares of common stock at $20 per share on July 1.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

–

Expenses

=

Income

b. Reacquired 450 shares of common stock at $18 per share on August 1.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

–

Expenses

=

Income

2. Assume that the company resold the shares of treasury stock at $28 per share on October 1.
The resale price of the treasury stock is $51,800, which when compared to its original cost, yielded   in the amount of $. This   is shown on the balance sheet as a(n)   in the   account.

Answer 1

	Common stock, $10 par, 10,000 shares issued and outstanding		$100,000
	Additional paid in capital		$50,000
	Retained earnings		$80,000
	Total Stockholders' equity		$230,000
1. (a)	Reaquired 1,400 shares @$20 on july 1
	Activity		Financing
	Accounts		Treasury Stock and Cash
	Statement(s)		Balance sheet
	Balance sheet						INCOME statement
	Assets	=	Liabilities	+	Equity		Revenues	-	Expenses	=	Net income
	-28000	=	No entry	+	-28000		No entry		No entry		No entry
1(b)	Reaquired 450 shares @$18 on August 1
	Activity		Financing
	Accounts		Treasury Stock and Cash
	Statement(s)		Balance sheet
	Balance sheet						INCOME statement
	Assets	=	Liabilities	+	Equity		Revenues	-	Expenses	=	Net income
	-8100	=	No entry	+	-8100		No entry		No entry		No entry
2	Journal entry for resold of treasury stock
			Debit		Credit
	Cash A/c		$51,800
	Treasury stock				$36,100		(8100+28000)
	Paid in capital from Treasury stock				$15,700		(Bal. fig.)
	Balance sheet						INCOME statement
	Assets	=	Liabilities	+	Equity		Revenues	-	Expenses	=	Net income
	51800	=	No entry	+	51800		No entry		No entry		No entry
	Balance sheet presentation
	Common stock, $10 par, 10,000 shares issued and outstanding		$100,000
	Additional paid in capital		$50,000
	Retained earnings		$80,000
	Paid in capital from Treasury stock		$51,000
	Total Stockholders' equity		$281,000