Gruber Law Offices paid $54,000 to buy back 9,000 shares of its $1 par value common stock.The stock was sold later at a selling price of $10 per share.The journal entry to record the sale would include a:

Question

Quizplus · Accepted Answer

When a company buys back its own stock, the amount paid is recorded as a debit to Treasury Stock and a credit to either Cash or Paid-in Capital from Treasury Stock Transactions (depending on the reason for the buyback). In this case, the credit was made to Paid-in Capital from Treasury Stock Transactions.

When the shares are later sold, the journal entry to record the sale would be a debit to Cash for the selling price ($10 x 9,000 = $90,000), a credit to Treasury Stock for the cost of the shares ($54,000), and a credit to Paid-in Capital from Treasury Stock Transactions for the difference ($36,000). Therefore, the correct answer is C.

Gruber Law Offices Paid $54,000 to Buy Back 9,000 Shares