On January 1,20x5,Dove Valley Corporation had 100,000 shares of $10 par value common stock issued and outstanding.All 100,000 shares had been issued in a prior period at $30 per share.On February 1,20x5,Dove Valley purchased 4,000 shares of treasury stock for $36 per share and later sold the treasury shares for $40 per share on March 2,20x5.The entry to record the sale of the treasury shares on March 2,20x5,is :

Question

Quizplus · Accepted Answer

The entry to record the sale of treasury shares includes debiting the Cash account for the proceeds received, crediting the Treasury Stock account for the cost of the shares sold, and recognizing the difference between the cash and the cost as a gain or loss in the Other Income or Expense account.

The journal entry in option B correctly reflects this by debiting Cash for $160,000 ($40 per share x 4,000 shares), crediting Treasury Stock for $144,000 ($36 per share x 4,000 shares), and crediting Other Income or Expense for $16,000 ($160,000 - $144,000).

On January 1,20x5,Dove Valley Corporation Had 100,000 Shares of $10