Question

A company issued 4,000 shares of $5 par common stock for $30 per share. The company purchased 1,200 shares as treasury stock at $32 per share. Later, the company reissued 400 shares of the treasury stock at $34 per share. Which of the following is true?

a. The Treasury Stock account should have a balance of $25,600.
b. The Treasury Stock account should have a balance of $24,800.
c. The company has a gain of $800 that should appear on the income statement.
d. The company has a gain of $1,600 that should appear on the income statement.

Answer 1

a. The Treasury Stock account should have a balance of $25,600.

Step-by-step explanation:

The computation is shown below:

= Number of treasury stock shares × price per share - reissued shares × price per share

= 1,200 shares × $32 - 400 shares × $32

= $38,400 - $12,800

= $25,600

All other information which is given is not relevant. Hence, ignored it

The repurchase shares journal entry is shown below:

Treasury stock A/c Dr $38,400

To Cash A/c $38,400

(Being treasury stock is repurchased)

And. the reissue of repurchase shares journal entry is shown below:

Cash A/c Dr $13,800

To Treasury Stock A/c $12,800

To Additional Paid in Capital A/c $800

(Being the reissued shares are recorded)

The computation is shown below:

For cash account:

= 400 shares × $34 per share

= $13,600

For Treasury Stock Account

= 400 shares × $32 per share

= $12,800

And, for Additional Paid in Capital Account

= $13,600 - $12,800

= $800