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Chapter 13: Q6SE_2 (page 708)

Question: Accounting for the purchase and sale of treasury stock

Discount Furniture, Inc. completed the following treasury stock transactions in 2018:

Dec. 1 Purchased 1,900 shares of the company’s \(1 par value common stock as treasury stock, paying cash of \)5 per share.

15 Sold 200 shares of the treasury stock for cash of \(8 per share.

20 Sold 1,000 shares of the treasury stock for cash of \)1 per share. (Assume the balance in Paid-In Capital from Treasury Stock Transactions on December 20 is $2,400.)

Requirements

2. How will Discount Furniture, Inc. report treasury stock on its balance sheet as of December 31, 2018?

Short Answer

Expert verified

Answer

The company will deduct the treasury stock value from Shareholders’ equity in the balance sheet under the retained earnings of the company.

Step by step solution

01

Basic Introduction

Treasury stock refers to the outstanding shares of the company which is buy back by the corporation for allocation of surplus capital or to take control of the company by holding diversified shares.

02

Partial Balance sheet

Shareholder’s equity

Retained Earnings

xxx

Less: Treasury Stock

xxx

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Most popular questions from this chapter

Reporting earnings per share

Return to the ABC data in Short Exercise S13-12. ABC had 8,000 shares of common stock outstanding during 2018. ABC declared and paid preferred dividends of $4,000 during 2018.

Show how ABC reports EPS data on its 2018 income statement.

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders’ Equity \) 17,640,000

Common Stock—$1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

1. Identify the different classes of stock that Voyage Comfort Specialists has outstanding.

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity

The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:

Common Stock—\(10 Par Value; 350,000 shares

authorized, 32,000 shares issued and outstanding

Paid-In Capital:

160,000

\) 320,000

650,000

Retained Earnings

Total Stockholders’ Equity \( 810,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 330,000

Total Paid-In Capital

During 2018, Goldstein completed the following selected transactions:

Feb. 6 Declared a 15% stock dividend on common stock. The market value of

Goldstein’s stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,300 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.10 per share cash dividend on the common stock outstanding.

Requirements

2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Goldstein’s net income for the year was $90,000.

Question: Identifying sources of equity, stock issuance, and dividends

Tillman Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—5%, ? Par Value; 625,000 shares

authorized, 325,000 shares issued and outstanding

Paid-In Capital:

\( 1,300,000

1,350,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders’ Equity \) 17,050,000

Common Stock—$1 Par Value; 7,000,000 shares

authorized, 1,350,000 shares issued and outstanding

Requirements

3. Make two summary journal entries to record issuance of all the Tillman Comfort Specialists stock for cash. Explanations are not required.

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity

The balance sheet of Cullins Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:

Common Stock—\(10 Par Value; 200,000 sharesauthorized, 22,000 shares issued and outstandingPaid-In Capital:

163,000

\) 220,000

580,000

Retained Earnings

Total Stockholders’ Equity \( 743,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 360,000

Total Paid-In Capital

During 2018, Cullins completed the following selected transactions:

Feb. 6 Declared a 5% stock dividend on common stock. The market value of

Cullins’s stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,000 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.20 per share cash dividend on the common stock outstanding.

Requirements

1. Record the transactions in the general journal.

2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Cullins’s net income for the year was $87,000.

3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.
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