On January 1, 20xx, Swenson Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, 20xx, Swenson purchased 4,000 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1, 20xx. The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a

Question

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When a company purchases its own stock, it is recorded as a reduction in the equity section of the balance sheet. The account used to record this reduction is called Treasury Stock. Since Swenson Corporation purchased 4,000 shares of treasury stock at $24 per share, the entry would be a debit to Treasury Stock for $96,000 (4,000 shares x $24 per share). The credit would be made to Cash for the same amount, since the shares were purchased for cash. Therefore, the correct answer is B. Options C and D are not applicable in this scenario because there is no gain or loss recognized until the shares are sold.

On January 1, 20xx, Swenson Corporation Had 40,000 Shares of $10