Question

Company A purchased treasury stock last year for $8/share, totaling $64,000 (8,000 shares * $8 per share).

Now Company A is repaying a debt owed to Company B (debt total is $28,000) is repaying company B by issuing them 7,200 shares of their tresaury stock.

Is this the correct journal entry to show this transfer?

Accounts payable: $28,000 debit

Paid In Capital of Excess of par $29,600 debit

Treasury Stock $57,600 credit ($8 * 7,200)

I am pretty certain of the figures I used however I am uncertain as to which account I would use for the second debit.

Thank you for your help.

Answer 1

Answer

--'Paid in Capital from Treasury Stock' account should have been DEBITED, IF there was any credit balance existing in that account.

--In the given case, Liability paid off $ 28000 is less than cost of treasury stock ($57600).

--The difference on the debit side is DEBITED to RETAINED EARNINGS account.

--Complete entry:
[Debit] Accounts Payable $ 28000
[Debit] Retained earnings $ 29600
[Credit] Treasury Stock $ 57600