Question

On November 1, Year 1 Dixon Company paid $20 per share to buy back 1,000 shares of its $8 par value common stock. The stock had originally sold for $15. On December 15, Year 1 Dixon sold 400 shares of the treasury stock at $24 per share. Which of the following shows how the sale of the treasury stock will affect Dixon's financial statements on December 15, Year 1?

Balance Sheet Income Statement Statement of Cash Flows
Assets Other Equity Accounts - Treasury Stock Paid-in Excess Treasury Stock Rev. - Exp. = Net Inc.

A. 9,600 NA - (8,000) 1,600 NA - NA = NA 9,600 IA
B. 9,600 NA - (8,000) 1,600 1,600 - NA = 1,600 1,600 OA
C. 9,600 NA - 9,600 NA 9,600 - NA = 9,600 9,600 FA
D. 9,600 NA - (8,000) 1,600 NA - NA = NA 9,600 FA

Answer 1

D. 9,600 NA - (8,000) 1,600 NA - NA = NA 9,600 FA

Step-by-step explanation:

The journal entry for the sale of treasury stock is shown below:

Cash A/c Dr $9,600

To Treasury Stock A/c $8,000

To Additional Paid in Capital A/c $1,600

(Being the sale of treasury stock is recorded)

The computation is shown below:

For cash account:

= 400 shares × $24 per share

= $9,600

For Treasury Stock Account

= 400 shares × $20 per share

= $8,000

And, for Additional Paid in Capital Account

= $9,600 - $8,000

= $1,600

For reissued shares, we debited the cash account and credited the treasury stock and Additional Paid in Capital account

It is considered as a financing activity