-7 (Bffect of Treasury Stock Transactions on Financials) Sanbon Company has outs

Question

-7 (Bffect of Treasury Stock Transactions on Financials) Sanbon Company has outstanding 40,000 shares of $5 par common stock which had been issued at $30 per share. Sanborn then entered into the following transactions 1. Purchased 5,000 treasury shares at $45 per share. Resold 500 of the treasury shares at S40 per share. 2. 3. Resold 2,000 of the treasury shares at $49 per share. instructions Use the following code to indicate the effect each of the three transactions has on the financial statement categones listed in the table below, assuming sanborn Company uses the cost method-increase: DDecrease; NE No effect. Stocknolders Paid-in Retained Caphal EarningsIncome Net Astets Liablilities Eauity

Explanation / Answer

Solution:

Given data,

Sanborn Company has outstanding 40,000 shares of $5 par common stockwhich had been issued at $30 per share.

Sanborn then entered into the following transactions.

1. Purchased 5,000 treasury shares at $45 per share.

2. Resold 500 of the treasury shares at $40 per share.

3. Resold 2,000 of the treasury shares at $49 per share.

# Assets Liabilities Stockholders equity Paid in capital Retained earnings Net income 1 Decrease No effect Decrease No effect No effect No effect 2 Increase No effect Increase No effect Decrease No effect 3 Increase No effect Increase Increase No effect No effect

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