Fefe Company purchased 20,000 common shares as treasury stock in 2013 for $15 an

Question

Fefe Company purchased 20,000 common shares as treasury stock in 2013 for $15 and made the following entry:

Treasury stock                                     $300,000

            Cash                                                                            $300,000

            Fefe sold the treasury shares for $20 per share in 2014 and made the following journal entry in error:

                        Cash                                        $400,000

                        Common Stock                                                            $400,000

Prepare the journal entry necessary to correct the error in 2014. Assume 2014 books are open.

Explanation / Answer

Rectified entry AMOUNT IN $ dr cr. Cash Dr        4,00,000 Investment (Tressury Stock) cr        3,00,000 profit & loass cr        1,00,000

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