Question

Problem 1 Before Cornell Corporation engaged in the 2017 treasury stock transactions listed below, its general ledger reflected, among others, the following account balances. The company uses the FIFO method for treasury stock transactions. Assume no beginning balance in Paid in capital-Treasury stock. Common stock (54,000 shares outstanding, $5 par) $ 270,000 Paid-in capital in excess of par $ 540,000 Retained earnings $1,800,000 The company had the following treasury stock transactions (in chronological order): a. Bought 2,800 shares of treasury stock at $18 per share. b. Bought 1,600 shares of treasury stock at $11 per share. c. Sold 1,100 shares of treasury stock at $19 per share. d. Sold 2,100 shares of treasury stock at $9 per share. Record the treasury stock transactions using the cost method.

Answer 1

Answer:

Journal Entries:

	Account title and Explanation	Debit	Credit
a	Treasury stock (2,800 x $18)	$50,400
	Cash		$50,400
	[To record re-acquisition of own shares]
b	Treasury stock (1,600 x $11)	$17,600
	Cash		$17,600
	[To record re-acquisition of own shares]
c	Cash (1,100 x $19)	$20,900
	Treasury stock (1,100 x $18 cost)		$19,800
	Paid-in capital in excess from treasury stock		$1,100
	[To record sale of treasury stock]
d	Cash (2,100 x $9)	$18,900
	Paid-in capital in excess from treasury stock	$1,100
	Retained Earnings	$15,000
	Treasury stock [(1,700 x $18 cost) + (400 x $11 cost)]		$35,000
	[To record sale of treasury stock]

Explanations:

For transaction d,

i.Balance shares in treasury stock which costs $18 per shares = 2,800 - 1,100 = 1,700 shares

ii.Additional shares sold in treasury stock which costs $11 per share = 2,100 - 1,7000 = 400 shares

iii.Total cost of the treasury stock sold = (1,700 x $18) + (400 x $11) = $30,600 + $4,400 = $35,000

iv. Debit to 'Paid-in capital in excess from treasury stock' to the extent of previous credit balance of $ 1,100.

v. Remaining balance charged to 'Retained earnings'.