E11-8 Recording Treasury Stock Transactions and Analyzing Their Impact During 20

Question

E11-8 Recording Treasury Stock Transactions and Analyzing Their Impact

During 2014, the following selected transactions affecting stockholders’ equity occurred for Corner Corporation:

Feb. 1 Purchased 400 shares of the company’s own common stock at $20 cash per share.

Jul. 15 Issued 100 of the shares purchased on February 1, for $30 cash per share.

Sept. 1 Issued 60 more of the shares purchased on February 1, for $15 cash per share.

Required:

1. Show the effects of each transaction on the accounting equation.

2. Give the indicated journal entries for each of the transactions.

3. What impact does the purchase of treasury stock have on dividends paid?

4. What impact does the issuance of treasury stock for an amount higher than the purchase price have on net income?

Answer 2nd 3rd and 4th

Explanation / Answer

01-Feb Treasury Stock $                    8,000.00           Cash (400 x 20) $   8,000.00 15-Jul Cash $                    3,000.00          Treasury Stock $   2,000.00          Additional Paid-in Capital $   1,000.00 01-Sep Cash $                       900.00 Additional Paid-in Capital $                       300.00          Treasury Stock $   1,200.00 3 Dividends are not paid on treasury stock. Therefore, the total amount of cash dividends paid is reduced when treasury stock is purchased 4 The sale of treasury stock for more or less than its original purchase price does not have an impact on net income. The transaction affects only balance sheet accounts.

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