Illusions,Inc.reacquired 15,000 shares of its common stock for $15 per share on June 1.On July 1 they sold 5,000 shares for $20 per share.On August 1 they sold 5,000 shares for $12 per share.Assuming no prior balance in the Additional Paid-in Capital From Treasury Stock Transactions account,what is the ending balance in this account following these transactions?

Question

Quizplus · Accepted Answer

- Illusions, Inc. reacquired 15,000 shares for $15 per share, which means the total cost was 15,000 x $15 = $225,000
- The cost of the reacquired shares is recorded as a reduction of retained earnings, so there is no impact on Additional Paid-in Capital From Treasury Stock Transactions account at this point.
- On July 1, they sold 5,000 shares for $20 per share, which means they received a total of 5,000 x $20 = $100,000. The cost of these shares was 5,000 x $15 = $75,000, resulting in a gain of $25,000 ($100,000 - $75,000). This gain is recorded in the Additional Paid-in Capital From Treasury Stock Transactions account as a credit.
- On August 1, they sold 5,000 shares for $12 per share, which means they received a total of 5,000 x $12 = $60,000. The cost of these shares was 5,000 x $15 = $75,000, resulting in a loss of $15,000 ($60,000 - $75,000). This loss is recorded in the Additional Paid-in Capital From Treasury Stock Transactions account as a debit.
- The ending balance in the Additional Paid-in Capital From Treasury Stock Transactions account is the sum of the gains and losses, which is a credit balance of $10,000 ($25,000 - $15,000). Therefore, the correct answer is D.