Botlom Dollar Fumiture, Inc. completed the follwing treasury stock transactions

Question

Botlom Dollar Fumiture, Inc. completed the follwing treasury stock transactions in 206 (Click the loon to view the transadtiona) Jounalze these trensacions Explanations are not nequired 2. How will Botom Dolar Fuue, n repot tresury sock on ts belance shoot as of December 31, 20167 More In Reqgulramant 1. Joumalize those transactions. (Record debits frst, ten oredts Eacude evpl Deo. t Ardased 180 shares ofthe orpry's $1 par vale common stock as treat ry stock pay De Purchased 1,800 shares of the company's $1 par value common stock an tresury stook, paying cash of $8 per share. Dec. 1 5 Sole 300 shares of the treasury stock for cash of $9 par share 20 Sold 700 shares be of the treasury sock for cash of $2 per share (Assume the balance in Dec. 15 Sold 300 shares of the treasury stock for cash of $9 per share Print Done Dec. 15 Choose from any list or enter any number in the irput Selds and then consnue to the next question

Explanation / Answer

Solution:

First of all we need to know the treatment and recording of treasury stock in the books of accounts:

Treasury Stock

Treasury Stock is the shares that a company repurchased from the market or from its shareholders.

Under cost method, the cost of shares purchased is debited to Treasury Stock Account.

On sale of treasury stock

(i) If selling price is higher than cost

- the relevant COST of treasury stock share is credited to Treasury Stock Account and Cash is debited with the total selling price and the difference is credited to Paid In Capital from treasury stock.

(ii) If selling price is lower than cost

Debit: Cash (with the selling price)

Debit: Retained Earnings (Difference between selling price and cost)

Credit: Treasury Stock (with the cost of share)

(iii) On retirement of Treasury Stock

Debit: Common Stock

Debit: Additional Paid In Capital – Treasury Stock

Debit: Retained Earnings

Credit: Treasury Stock

Part 1 --- Journal Entries

Date

Account Titles and Explanation

Debit

Credit

Dec.1

Treasury Stock - Common (1800 Shares x Cost $6)

$10,800

Cash

$10,800

Dec.15

Cash (300 Shares x $9)

$2,700

   Treasury Stock - Common (300 Shares x Cost $6)

$1,800

   Paid in Capital from Treasury Stock Transactions (Bal fig)

$900

Dec.20

Cash (700 Shares x $2)

$1,400

Paid in Capital from Treasury Stock Transactions

$2,700

Retained Earnings (Bal. fig)

$100

   Treasury Stock - Common (700 Shares x Cost $6)

$4,200

Part 2 ---

Bottom Dollar Furniture Inc will report treasury stock beneath retained earnings on the balance sheet as a reduction to total stockholder’s Equity

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Date

Account Titles and Explanation

Debit

Credit

Dec.1

Treasury Stock - Common (1800 Shares x Cost $6)

$10,800

Cash

$10,800

Dec.15

Cash (300 Shares x $9)

$2,700

   Treasury Stock - Common (300 Shares x Cost $6)

$1,800

   Paid in Capital from Treasury Stock Transactions (Bal fig)

$900

Dec.20

Cash (700 Shares x $2)

$1,400

Paid in Capital from Treasury Stock Transactions

$2,700

Retained Earnings (Bal. fig)

$100

   Treasury Stock - Common (700 Shares x Cost $6)

$4,200

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