On October 10, the stockholders’ equity of Sherman Systems appears as follows. C
ID: 2600694 • Letter: O
Question
On October 10, the stockholders’ equity of Sherman Systems appears as follows. Common stock–$10 par value, 73,000 shares authorized, issued, and outstanding $ 730,000 Paid-in capital in excess of par value, common stock 221,000 Retained earnings 872,000 Total stockholders’ equity $ 1,823,000
1. Prepare journal entries to record the following transactions for Sherman Systems. a. Purchased 5,100 shares of its own common stock at $26 per share on October 11. b. Sold 1,025 treasury shares on November 1 for $32 cash per share. c. Sold all remaining treasury shares on November 25 for $21 cash per share.
2. Prepare the revised equity section of its balance sheet after the October 11 treasury stock purchase.
3. Revised Equity of Balance Sheet After October 11
Total contributed capital
Total
Total stockholders’ equity $
Explanation / Answer
Treasury Stock, Common 132600 Cash 132600 5100*26 Cash 32800 Treasury Stock, Common 26650 Paid in capital, Treasury Stock 6150 Cash (5100-1025)*21 85575 Paid in capital, Treasury Stock 6150 Retained earnings 14225 Treasury Stock, Common 105950 The purchase of treasury stock changes the Stockholders equity section by: 1. common stock description will include mention of the treasury stock but not the value 2. retained earnings description will change and will mention the amount of restriction by the treasury stock purchase 3. a deduction will be listed after the retained earnings, "less cost of treasury stock" this deduction will be a credit 4. the total stockholders' equity will be reduced by the credit from the deduction Common Stock -- $10 par value, 73,000 shares authorized, issued and outstanding, 5100 shares in treasury 730000 Paid-in capital in excess of par value, common stock 221000 Retained earnings, $132,600 restricted by treasury stock purchase 872000 Less cost of treasury stock -132600 Total stockholders' equity 1690400
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