Lake Lanier Grill
The stockholders' equity section of the December 31, 2019, balance sheet is provided below:
Assume that all 2,000 shares of stock were issued as of December 31, 2019 for $3.50 per share. On March 1, 2020, the company reacquired 1,000 shares of its common stock for $4.50 per share.
-Refer to Lake Lanier Grill, Inc. If all of the 1,000 shares that Lake Lanier Grill repurchased on March 1 were later reissued for $4.00 per share, the journal entry to record this transaction includes a debit to what account and for what amount?

Question

Lake Lanier Grill
The stockholders' equity section of the December 31, 2019, balance sheet is provided below:
  Assume that all 2,000 shares of stock were issued as of December 31, 2019 for $3.50 per share. On March 1, 2020, the company reacquired 1,000 shares of its common stock for $4.50 per share.
-Refer to Lake Lanier Grill, Inc. If all of the 1,000 shares that Lake Lanier Grill repurchased on March 1 were later reissued for $4.00 per share, the journal entry to record this transaction includes a debit to what account and for what amount?

Quizplus · Accepted Answer

In this case, Lake Lanier Grill, Inc. repurchased 1,000 shares of its common stock for $4.50 per share, and later reissued them for $4.00 per share. The reissuance is at a lower price than the repurchase price, which means that the company is selling the treasury stock for less than what it paid to reacquire it.
The journal entry to record the reissuance of treasury stock at a price lower than the repurchase price includes:
- A debit to Cash for the amount received from the reissuance (1,000 shares * $4.00/share = $4,000).
- A debit to Paid-in Capital from Treasury Stock Transactions for the difference between the repurchase price and the reissuance price, to the extent that there is a credit balance in this account from previous transactions.
- A credit to Treasury Stock for the repurchase price of the shares (1,000 shares * $4.50/share = $4,500).
- If the Paid-in Capital from Treasury Stock Transactions is not sufficient to cover the difference, a debit to Retained Earnings for the remaining amount.
Since the question does not provide information about previous treasury stock transactions or the balance in the Paid-in Capital from Treasury Stock Transactions account, we cannot determine the exact amount that would be debited to this account or to Retained Earnings. However, we can determine the credit to Treasury Stock and the debit to Cash.
The correct journal entry to record the reissuance of the treasury stock would be:
- Debit Cash $4,000 (1,000 shares * $4.00/share)
- Debit Paid-in Capital from Treasury Stock Transactions and/or Retained Earnings for the remaining amount necessary to balance the entry
- Credit Treasury Stock $4,500 (1,000 shares * $4.50/share)
Given the options provided:
a. $4,000 to paid-in capital from treasury stock transactions
b. $2,000 to treasury stock
c. $500 to retained earnings
d. $4,500 to cash
The correct answer is not explicitly listed because we would credit Treasury Stock for $4,500 and debit Cash for $4,000. The remaining $500 would be debited to Paid-in Capital from Treasury Stock Transactions if there is a sufficient credit balance in that account, or to Retained Earnings if not. However, based on the options provided, the closest answer would be:
d. $4,500 to cash (as part of the entry, but not the complete entry)

Lake Lanier Grill The Stockholders' Equity Section of the December 31, 2019, Balance