Thomas & Schupback, Inc. was started when it issued 200 shares of $5 par value c

Question

Thomas & Schupback, Inc. was started when it issued 200 shares of $5 par value common stock at a market price of $20 per share. The company later repurchased 10 of these shares (i.e. Treasury Stock) at a market price of $15 per share. During the first year, the company earned $1,200 of net income.

____26. The journal entry to record the original issue of 200 shares of stock would

a.   increase cash by $4,000 and increase common stock by $4,000.

b.   increase cash by $4,000 and increase common stock and paid-in capital in excess of par value by $1,000 and $3,000, respectively.

c.   decrease cash by $4,000 and increase common stock common stock by $4,000.

____27. The journal entry to record the purchase of the 10 shares of the company’s own stock would

a.   decrease liabilities and decrease equity.

b.   decrease assets and increase equity.

c.   decrease assets and increase treasury stock.

____ 28. IF the company decided to reissue the 10 shares of Treasury Stock purchased in the previous question, regardless of the price, the income statement would not be affected.

a. True     b. False

Explanation / Answer

26. Journal entry for issu of common stock will be as follows

cash A/c Dr. $4000

To common stock $1000

To additional paid in capital $3000

Therefore answer is (b).

27. Journal entryof purchase of treasury stock will be as follows

Treasury stock A/c Dr. $150

To cash A/c $150

Therefore answer will be (c).

28. Journal entry for reissue of treasury stock will be as follows

Cash a/c Dr. xxx

To treasury stock A/c xxx

To aditional paid in capital xxx

Thus the given statement is True.

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