Russell international, a publicly traded company, reacquired 500,000 shares of i

Question

Russell international, a publicly traded company, reacquired 500,000 shares of its common stock during July 2017 at a cost of $25 per share. The current market price of the stock was $20 per share when the 500,000 shares were reacquired. The shares that were reacquired had been owned by a group of minority shareholders who had been dissatisfied with Russell's earnings trend, stock price, and dividends paid. In fact, these minority shareholders had been so disgruntled that they filed a suit against Russell's directors during 2016. The minority shareholders' suit claimed damages of $3 million because of the board's failure to fulfill its fiduciary responsibility to maximize shareholder's value. In August 2017, the minority shareholders' suit was dropped, with neither Russell nor its directors having to offer or pay a settlement. Russell accounts for its treasury stock transactions using the cost method. Directions: Research the related generally accepted accounting principles and explain how Russell should account for the treasury stock transaction. Cite your references and applicable paragraph numbers.

Explanation / Answer

As Russell is recording the Treasury Stocks on the Cost Method so it should account for the treasury stock transaction (purchase of 500000 @ $25) as under:

Purchase of Treasury Stock (Cost Method):

As per generally accepted accounting principles, dropping of the Market Share price to $20 has no on the value of the Treasury Stock as the method of accounting is Cost Method and cost always remain the purchase price of stock.

Debit Treasury Stock 1,2500,000 Credit Cash 1,2500,000

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.