Before Gordon Corporation engages in the treasury stock transactions listed on the next page, its general ledger reflects, among others, the following account balances (par value of its stock is \(30 per share).

Paid-in Capital in Excess of Par Common Stock Retained Earnings

Common Stock

\)99,000 \(270,000 \)80,000

Instructions

Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes.

(a) Bought 380 shares of treasury stock at \(40 per share.

(b) Bought 300 shares of treasury stock at \)45 per share.

(c) Sold 350 shares of treasury stock at \(42 per share.

(d) Sold 110 shares of treasury stock at \)38 per share.

Step by step solution

01

Meaning Of FIFO method

FIFO (First in First Out) method where the stock bought by the company is sold first, which means that all the stocks are sold in the same order as they are received. It is known as the best method for valuing inventory and the first choice of any business enterprise.

02

Preparing Journal Entries (a)

Date	Particular	Debit ($)	Credit ($)
	Treasury Stock	15,200
	Cash		15,200

Working Notes:

$\begin{array}{rcl}\mathrm{Treasury}\mathrm{stock}& =& \mathrm{Shares}\times \mathrm{per}\mathrm{value}\mathrm{share}\\ & =& 380\times \$40\\ & =& \$15,200\\ & & \end{array}$

03

Preparing Journal Entries (b)

Date	Particular	Debit ($)	Credit ($)
	Treasury Stock	13,500
	Cash		13,500

Working Notes:

$\begin{array}{rcl}\mathrm{Treasury}\mathrm{stock}& =& \mathrm{Shares}\times \mathrm{per}\mathrm{value}\mathrm{share}\\ & =& 300\times \$45\\ & =& \$13,500\end{array}$

04

Preparing Journal Entries (c)

Date	Particular	Debit ($)	Credit ($)
	Cash	14,700
	Treasury Stock		14,000
	Paid-in Capital from Treasury Stock		700

Working Notes:

$\begin{array}{rcl}\mathrm{Treasury}\mathrm{stock}& =& \mathrm{Shares}\times \mathrm{per}\mathrm{value}\mathrm{share}\\ & =& 350\times \$40\\ & =& \$14,000\\ \mathrm{Paid}-\mathrm{in}\mathrm{capital}\mathrm{from}\mathrm{Treasury}\mathrm{stock}& =& \mathrm{Shares}\times \mathrm{per}\mathrm{value}\mathrm{share}\\ & =& 350\times \$2\\ & =& \$700\end{array}$

05

Preparing Journal Entries (d)

Date	Particular	Debit ($)	Credit ($)
	Cash	4,180
	Paid-in Capital from Treasury Stock	620
	Treasury Stock		4,800

Working Note:

Calculating treasury share sold amount using FIFO

30 shares purchased at $40	$ 1,200
80 shares purchased at $45	3,600
Cost of treasury shares sold using FIFO	$4,800

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