A company issued 4,000 shares of $5 par common stock for $30 per share. The comp
ID: 2740103 • Letter: A
Question
A company issued 4,000 shares of $5 par common stock for $30 per share. The company purchased 1,200 shares as treasury stock at $32 per share. Later, the company reissued 400 shares of the treasury stock at $34 per share. Which of the following is true?
a. The Treasury Stock account should have a balance of $25,600. b. The Treasury Stock account should have a balance of $24,800. c. The company has a gain of $800 that should appear on the income statement. d. The company has a gain of $1,600 that should appear on the income statement.Explanation / Answer
Answer is a. The treasury stock account should have a balance of $25,600.
On repurchase of 1,200 shares, the journal entry would involve debiting the treasury stock and crediting cash account by the amount of repurchase. Amount of repurchase = 1,200 shares * $32 = $38,400. Hence, after repurchase of shares, the treasury stock acccount shall have a debit balance of $38,400.
On reissue of repurchased shares, the treasury stock shall be credited by the amount of repurhcase price for the number of shares to be reissued. The repurchase price per share was $32 while the reissue price is $34. The balance $2 shall be credited to paid in capital in excess of par value. Hence, amount to be credited to treasury stock is $32*400 shares = $12,800
Hence after the reissue of shares, the treasury stock shall have debit balance of $38,400-$12,800 = $25,600.
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