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 reissuance of the shares on October 12 would be:
A)Debit Cash,$11,400; Credit Treasury Stock,$800; Credit Paid-in Capital,Treasury Stock,$10,600.
B)Debit Cash,$11,400; Debit Paid-in Capital in Excess of Par Value,Common Stock,$600; Credit Treasury Stock,$12,000.
C)Debit Cash,$11,400; Debit Paid-in Capital in Excess of Par Value,Common Stock,$400; Debit Retained Earnings,$200; Credit Treasury Stock,$12,000.
D)Debit Cash,$11,400; Debit Paid-in Capital,Treasury Stock,$600; Credit Treasury Stock,$12,000.
E)Debit Cash,$11,400; Debit Paid-in Capital,Treasury Stock,$400; Debit Retained Earnings,$200; Credit Treasury Stock,$12,000.

Question

Quizplus · Accepted Answer

When reissuing treasury stock, the cost of the shares (in this case, $11,400) is debited to Cash, the par value of the shares ($2 per share) is credited to Treasury Stock, and any excess is credited to Paid-in Capital, Treasury Stock. Since the company received $19 per share for the remaining 600 shares, which is $1 less than the repurchase price of $20, there is a $600 deficiency. This deficiency is debited to Paid-in Capital, Treasury Stock, reducing the credit balance to $400. The remaining $200 is debited to Retained Earnings to reflect the decrease in equity due to the net loss on the reissuance of treasury stock. Therefore, the journal entry is: Debit Cash $11,400, Debit Paid-in Capital, Treasury Stock $400, Debit Retained Earnings $200, Credit Treasury Stock $12,000.

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