GE buys back 300,000 shares of its stock from investors at $45 a share.Two years later it reissues this stock for $65 a share.The stock reissue would be recorded as:

Question

Quizplus · Accepted Answer

When GE buys back its own stock, it records the transaction by debiting its Treasury Stock account and reducing its Cash or other asset account. In this case, GE pays $45 per share to buy back 300,000 shares, so it would debit its Treasury Stock account for $13.5 million and credit its Cash account for $13.5 million.

When GE reissues the stock two years later for $65 per share, it records the transaction by crediting its Treasury Stock account for the cost of the shares ($13.5 million) and crediting any excess of the sale price over the cost to Additional Paid-in Capital. In this case, the sale price per share is $65, so the total value of the stock reissued is $19.5 million. Since we know that the cost of the stock was $13.5 million, we can see that GE made a profit of $6 million on the sale. Therefore, GE would debit its Cash account for $19.5 million, credit its Treasury Stock account for $13.5 million, and credit its Additional Paid-in Capital account for $6 million.

Thus, Choice C is the correct answer.

GE Buys Back 300,000 Shares of Its Stock from Investors