Use the following information to answer the question below. The following transactions involving Culbert Corporation occurred during the year:
The entry to record the May 3 transaction would be:

Question

Use the following information to answer the question below. The following transactions involving Culbert Corporation occurred during the year:
 The entry to record the May 3 transaction would be:

Quizplus · Accepted Answer

The question does not provide enough information to determine the nature of the May 3 transaction. However, the entry provided in option B reflects a common journal entry related to treasury stock transactions. Treasury stock is stock that a company has bought back from its shareholders. The entry in option B shows that Culbert Corporation paid $20,000 to buy back preferred stock, but only $16,000 of that amount was used to buy the actual stock. The remaining $4,000 was credited to the Paid-in Capital, Treasury Stock account. This account reflects the amount of money received by the company when it first issued the stock that is now being repurchased. The Retained Earnings account in option C is not relevant to a treasury stock transaction. Option A is incorrect because it does not show the Paid-in Capital, Treasury Stock account. Option D is incorrect because it shows only the cost of buying back the stock, but it does not reflect the amount of money the company originally received when it first issued the stock.

Use the Following Information to Answer the Question Below