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Question 2P

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 819

Short Answer

(Treasury Stock Transactions and Presentation) Clemson Company had the following stockholders’ equity as of January 1, 2017

Common stock, $5 par value, 20,000 shares issued $100,000

Paid-in capital in excess of par—common stock 300,000

Retained earnings 320,000

Total stockholders’ equity $720,000

During 2017, the following transactions occurred.

Feb.1 Clemson repurchased 2,000 shares of treasury stock at a price of $19

per share.

Mar.1 800 shares of treasury stock repurchased above were reissued at $17

per share.

Mar.18 500 shares of treasury stock repurchased above were reissued at $14

per share.

Apr. 22 600 shares of treasury stock repurchased above were reissued at $20

per share.

Instructions

  1. Prepare the journal entries to record the treasury stock transactions in 2017, assuming Clemson uses the cost method.
  2. Prepare the stockholders’ equity section as of April 30, 2017. Net income for the first 4 months of 2017 was $130,000.

The total debit and credit balance of Journal is $74,700 and total shareholders’ equity is $844,600

See the step by step solution

Step by Step Solution

Meaning of Reissue of Shares

Shares re-issue refers to the process of re-issuing treasury stock in the open market for the purpose of raising more money for business operations.

Preparing Journal Entries

Date

Particular

Debit $

Credit $

February 1

Treasury Stock

38,000

Cash

38,000

To record the issue of shares

March 1

Cash

13,600

Retained Earnings

1,600

Treasury Stock

15,200

To record issue of share

March 18

Cash

7,000

Retained Earnings

2,500

Treasury Stock

9,500

To record issue of share

April 22

Cash

12,000

Treasury Stock

11,400

Paid-in Capital from Treasury Stock

600

To record issue of share

Preparing Stockholders’ Equity Section

CLEMSON COMPANY

Stockholders’ Equity

April 30, 2014

Common stock ,$5par value,20,000 shares

Issued,19,900 shares outstanding

$100,000

Paid-in Capital in Excess of par-common stock

300,000

Paid-in capital from treasury stock

600

Total paid-in capital

$400,600

Retained Earnings

445900

Less: Treasury Stocks

1,900

Total Stockholders’ Equity

$844,600

Working note:-

Computation of Retained Earnings

Retained Earnings (beginning balance)

$320,000

March 1 reissuance

(1,600)

March 18 reissuance

(2500)

Net Income for period

130,000

Retained Earnings (ending balance)

$445,900

Computation of Treasury Stock

Treasury Stock (beginning balance)

0

February 1 purchase (2,000)

38,000

March 1 sale (800 shares)

(15,200)

March 18 sale (500 shares)

(9,500)

April 12 sale (600 shares)

(11,400)

Treasury stock (ending balance)

$ 1,900

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