Moony Corporation had 20,000 shares of $4 par-value common stock outstanding on January 1, 2012. On January 10, 2012, the firm purchased 2,000 of its outstanding shares for $18 per share. On July 22, 2012, it reissued 1,000 shares at $22 per share. Given this information, the entry to record the reissuing of the remaining 1,000 shares on August 17, 2012, at $12 per share would probably include a

Question

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When a company purchases its own shares and holds them in treasury, the shares are no longer considered outstanding. Therefore, the reissuing of those shares would decrease the number of shares held in treasury and increase the number of shares outstanding.

To record the reissuing of the remaining 1,000 shares on August 17, 2012, at $12 per share, the following entry would be appropriate:

Debit Treasury Stock for $18,000 (1,000 shares x $18 per share)
Credit Cash for $12,000 (1,000 shares x $12 per share)
Credit Paid-in Capital in Excess of Par-Common Stock for $2,000 (1,000 shares x [$18 - $4] per share)

The debit to Retained Earnings in choice B is not appropriate because there is no indication that the company incurred a loss on the sale of the shares. The debit to Paid-In Capital, Treasury Stock in choice C is incorrect because the company is not reissuing treasury stock, it is selling treasury stock. The debit to Loss on Sale of Stock in choice D is also incorrect for the same reason. The credit to Treasury Stock in choice A is correct, but it is only part of the entry that should be recorded.

Moony Corporation Had 20,000 Shares of $4 Par-Value Common Stock