Question

The Stockholders' Equity section of Deer Lakes Manor's balance sheet on January 1, 2017, appeared as follows:

Common stock, $30 par, 20,000 shares issued and outstanding
$ 600,000
Additional paid-in capital—common
240,000
Retained earnings
700,000
Total stockholders' equity
$1,540,000
On March 1, 2017, Deer Lakes reacquired 4,000 shares of common stock at $50 per share. All common shares were originally sold for $42 each. How much should be reported in the Treasury Stock account on the March 31, 2017, balance sheet?

a.
$128,000

b.
$168,000

c.
$200,000

d.
$32,000

Answer 1

The Treasury Stock account on the March 31, 2017 balance sheet for Deer Lakes Manor should report $200,000, which is the total cost of reacquiring 4,000 shares at $50 each.

Step-by-step explanation:

When Deer Lakes Manor reacquired 4,000 shares of common stock at $50 per share, it spent a total of $200,000 (4000 shares × $50 per share). The treasury stock is a contra equity account and is reported at cost, which is the amount the company paid to reacquire the shares. Since the shares were reacquired at $50 each, and a total of 4,000 shares were bought back, the amount reported in the Treasury Stock account on the March 31, 2017, balance sheet should be $200,000 (option c).