On June 5, 2017, Lewiston, a tile manufacturer, repurchased 2,000 of its $0.75 p

Question

On June 5, 2017, Lewiston, a tile manufacturer, repurchased 2,000 of its $0.75 par value common shares for $22.50 cash per share. On October 5, 2017, Lewiston reissues the 2,000 common shares for $40.50 cash per share. Prepare the journal entries for the transactions above and answer the following questions.

a. What is the change in the treasury stock account on June 5, 2017?

b. On October 5, does Lewiston recognize a profit from the $18 per share increase in the stock’s market value?

c.    What is the change in the treasury stock account as a result of the October 5, 2017 transaction?

d. What is the change in the additional paid-in capital account as a result of the October 5, 2017 transaction?

Explanation / Answer

June 5, 2017:

Treasury Stock Dr 45000 (2000*22.50)

Cash Cr 45000

October 5, 2017:

Cash Dr 81000 (2000*40.50)

Treasury stock Cr 45000 (2000*22.50)

Additional Paid-in-capital - Treasury Stock Cr 36000

a) Change in treasury stock = 45000 (2000*22.50)

b) Yes, Lewiston recognize a profit from the $18 per share increase in the stock’s market value.

c) Change in Treasury stock = 45000 - 45000 = 0. The balance of treasury stock becomes 0..

d) Change in Additional paid-in-capital = 36000

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