Please refer to the following information for Petra Sales Company: If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, what journal entry is required?

Question

Please refer to the following information for Petra Sales Company:  If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, what journal entry is required?

Quizplus · Accepted Answer

When purchasing treasury stock, the company is using cash to buy back its own shares. Therefore, the journal entry required is to debit Treasury stock for the cost of the shares purchased ($14 per share x 5,000 shares = $70,000) and credit Cash for the same amount. Option A is incorrect because it is reversing the debit and credit accounts. Option C is incorrect because purchasing treasury stock does not generate any sales revenue. Option D is incorrect because it incorrectly includes a debit to Paid-in capital, which is not required in this transaction.

Please Refer to the Following Information for Petra Sales Company