Quiz 1 Help
Journal Entries for common stock reacquired and then sold from the treasury
Record the following transactions of a company in general journal form:
(a) Reacquired 8,000 of its own $10 par value common stock at $40 cash per share.
The stock was originally issued at $15 per share.
(b) Sold 2,000 shares of the stock reacquired under part (a) at $43 cash per share.
(c) Sold 3,000 shares of the stock reacquired under part (a) at $39 cash per share.
Solution
go to problem
Record the following transactions of a company in general journal form:
(a) Reacquired 8,000 of its own $10 par value common stock at $40 cash per share.
The stock was originally issued at $15 per share.
This is a treasury stock. When treasury stock is purchased, it is recorded at the cost price.
The original issue price is not relevant. The total cost is 8,000X40=$320,000.
The journal entry is
Treasury Stock Dr 320,000
Cash Cr 320,000
(b) Sold 2,000 shares of the stock reacquired under part (a) at $43 cash per share.
When treasury stock is sold at a price higher than the cost price, the difference goes to
paid in capital  treasury stock. The journal entry is
Cash (2,000X43) Dr 86,000
Treasury Stock (2,000X40) Cr 80,000
Paid in CapitalTreasury Stock Cr 6,000
(c) Sold 3,000 shares of the stock reacquired under part (a) at $39 cash per share.
When treasury stock is sold at a price less than the cost price, the difference is first
debited to paid in capitaltreasury stock. If the balance in this account is not sufficient, the
balance amount remaining is debited to retained earnings. In this case the difference is
(4039)X3,000=$3,000 and there is a balance of $6,000 on paidin capitaltreasury stock
and so no debit to retained earnings. The journal entry is
Cash Dr (3,000X39) 117,000
Paid in Capital  Treasury Stock Dr 3,000
Treasury Stock (3,000X40) Cr 120,000
Quiz 2 Help
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentOn January 1, a company issues bonds with a par value of $300,000. The bonds mature in
5 years and pay 8%
annual (
this should be semi annual)
interest each June 30 and
December 31. On the issue date, the market rate of interest is 6%. Compute the price of
the bonds on their issue date. The following information is taken from present value
tables:
Present value of annuitiy for 10 periods at 3%
8.5302
Present value of annuitiy for 10 periods at 4%
8.1109
Present value of 1 due in 10 periods at 3%
0.7441
Present value of 1 due in 10 periods at 4%
0.6756
The price of the bonds is the present value of interest and principal. The annual interest is
300,000X8% = 24,000 and the principal amount is $300,000. Interest is an annuity and so
we use the PV of annuity. Principal is a lump sum and so we use PV of $1. The
discounting rate is the market rate of interest which is 6%. The tables above imply semi
annual interest payment as we are given for 10 periods and 3% and 4% rate. Doing on
semi annual basis, semi annual interest would be 12,000, periods would be 10 and rate
would be 6%/2 = 3%
Price of bonds = 12,000 X 8.5302 + 300,000 X 0.7441
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '09
 NANCYEVERETT
 Accounting, Balance Sheet

Click to edit the document details