Question

On April 10, 2019, Amelia Inc. purchased 200 shares of its own common stock in the market for $12 per share. On September 28, 2019, the company sold 120 of these shares in the open market at a price of $14 per share. Required: a. Use the horizontal model to show the effects on Amelia Inc.’s financial statements of the purchase of the treasury stock on April 10, 2019. Indicate the financial statement effect.

Answer 1

Assets = Liabilities + Equity

Purchase: cash Treasury Stock Addiotnal Paid-in TS

(2,200) (2,200)

Sale of Treasury Stock

1,680 1,440 240

Step-by-step explanation:

Purchase of Treasury Stock:

the purchase will decrease both, assets as we are using cash

And equity, as the outstanding shares decrease.

The transaction is reported at cost: 200 shares x $ 12 each = 2,400

Sale of treasury stock:

As the price is different we will recognize an additional paid-in for the difference:

cash proceeds: 120 x 14 = 1,680

treasury stock at cost: 120 x 12 = 1,440

additional paid-in 240