Final Answer:
California Surf Clothing Company would record the sale of treasury stock as follows:
Debit Cash (100 shares * $28)
Credit Treasury Stock (100 shares * $26)
Credit Paid-in Capital—Treasury Stock (Difference between sale and cost per share)
Step-by-step explanation:
In the given scenario, California Surf Clothing Company initially issued 1,000 shares of $1 par value common stock at $23 per share, raising $23,000 in total (1,000 shares * $23). Later in the year, the company decided to repurchase 100 shares of its own stock at a cost of $26 per share, amounting to $2,600 in total (100 shares * $26).
When the company resells the treasury stock at $28 per share, the cash received would be $2,800 (100 shares * $28). To record this transaction, you debit Cash for $2,800, representing the cash inflow. Simultaneously, you credit Treasury Stock for the original cost of $2,600 (100 shares * $26), and any excess goes to Paid-in Capital—Treasury Stock. In this case, the difference is $200 (100 shares * ($28 - $26)), which is credited to Paid-in Capital—Treasury Stock.
This accounting treatment ensures an accurate reflection of the cash received, the original cost of the treasury stock, and the additional amount contributed to equity through the sale. The company maintains transparency in its financial records by properly accounting for the sale of treasury stock in accordance with generally accepted accounting principles (GAAP).