Lava Lake Inc. bottles and distributes spring water. On February 11 of the curre

Question

Lava Lake Inc. bottles and distributes spring water. On February 11 of the current year, Lava Lake reacquired 180,000 shares of its common stock at $17 per share. On April 30, Lava Lake Inc. sold 90,000 of the reacquired shares at $20 per share. On August 22, Lava Lake Inc. sold 30,000 shares at $15 per share.

Required:

A. Journalize the transactions of February 11, April 30, and August 22. Refer to the Chart of Accounts for exact wording of account titles. B. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? C. For what reasons might Lava Lake have purchased the treasury stock?

Explanation / Answer

Journal entry :

b) Balance in paid in capital from sale of treasury stock = 270000-60000 = 210000

c) Reason for purchase of treasury stock :

i) Increase earning per share

ii) Maintain favorable market of its stock

Date account and explanation debit credit Feb 11 Treasury stock (180000*17) 3060000 Cash 3060000 (To record purchase treasury stock) Apr 30 Cash (90000*20) 1800000 Treasury stock 1530000 Paid in capital from sale of treasury stock 270000 (To record sale of treasury stock) Aug 22 Cash (30000*15) 450000 Paid in capital from sale of treasury stock 60000 Treasurys tock 510000 (To record sale of treasury stock)

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