Prior to September 30,a company has never had any treasury stock transactions.A company repurchased 1,000 shares of its $2 par common stock on September 30 for $20 per share.On October 2,it reissued 400 of these shares at $21 per share.On October 12,it reissued the remaining 600 shares at $19 per share.The journal entry to record the purchase of the shares on September 30 would be:
A)Debit Treasury Stock,$20,000; Credit Cash,$20,000.
B)Debit Common Stock,$20,000; Credit Cash,$20,000.
C)Debit Cash,$20,000; Credit Treasury Stock,$20,000.
D)Debit Cash,$20,000; Credit Common Stock,$2,000,Credit Paid-in Capital in Excess of Par Value,Common Stock,$18,000.
E)Debit Cash,$8,400,Credit Treasury Stock,$8,000,Credit Paid-in Capital in Excess of Par Value,Common Stock,$400.

Question

Quizplus · Accepted Answer

The correct journal entry for purchasing treasury stock is to debit the Treasury Stock account for the total purchase amount ($20,000 in this case, calculated as 1,000 shares at $20 per share) and credit Cash for the same amount. This reflects the outflow of cash to repurchase the shares and the increase in treasury stock.

Prior to September 30,a Company Has Never Had Any Treasury