Question

What is the journal entry to record the purchase of the stock on January 20?

1) dr. Treasury Stock...................................8,000
dr. Additional Paid-in Captial................24,000
cr. Cash..........................................32,000
2) dr. Treasury Stock...................................32,000
cr. Cash..........................................32,000
3) dr. Treasury Stock...................................8,000
dr. Common Stock..................................24,000
cr. Cash..........................................32,000
4) dr. Common Stock...................................32,000
cr. Cash..........................................32,000

Answer 1

The journal entry to record the purchase of the stock on January 20 is option 3.

Step-by-step explanation:

The correct journal entry to record the purchase of the stock on January 20 is option 3) dr. Treasury Stock...................................8,000 dr. Common Stock..................................24,000 cr. Cash..........................................32,000.

When a company purchases treasury stock, it debits the Treasury Stock account to reflect the purchase price of the stock. Additionally, the company credits the Cash account to show the outflow of cash for the purchase.

In option 3, the debits to the Treasury Stock and Common Stock accounts reflect the purchase of stock, while the credit to the Cash account shows the cash payment made for the stock.