Treasury stock: Treasury stock account is debited when a company purchases their

Question

Treasury stock: Treasury stock account is debited when a company purchases their own stock for the amount was paid for those shares. The cash used to purchase treasury stock can be calculated as the number of shares purchased times the market price per share. The treasury stock account (contra equity) is debited for the same amount. Treasury stock is not an asset!! It is a contra equity account—reduces the stockholders’ equity. The par value is irrelevant information for these journal entries.

Assume the company purchased 110 shares of its $2 par common stock for $23 a share.

Determine the amount of cash used to purchase the stock:

Number of shares x price = 110 x 23 = __________

Complete the journal entry to record the purchase.

dr. Treasury stock____________( # of shares x price)

cr. Cash____________ ( # of shares x price)

Assume the company purchased 2,000 shares of its $4 par common stock for $42 per share. Write the journal entry.

Assume a company purchased 450 shares of treasury stock when the price was $82 a share. Write the journal entry.

Explanation / Answer

Number of shares x price = 110 x 23 = $2530 Treasury stock 2530         Cash 2530 Treasury stock 84000 =2000*42         Cash 84000 Treasury stock 36900 =450*82         Cash 36900

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