Question

Stromboli Company acquired 30,000 shares of its own common stock at $22 per share on February 5, 2017, and sold 10,000 of these shares ar $29 per share on August 9, 2018. The fair value of Gannon's common stock was $24 per share at December 31, 2017, and $27 per share at December 31, 2018. The cost method is used to record treasury stock transactions. What account(s) should Stromboli credit in 2018 to record the sale of 10,000 shares?

a. Treasury Stock for $240,000 and Paid-in Capital from Treasury Stock for $30,000.
b. Treasury Stock for $290,000
c. Treasury Stock for $200,000 and Paid-in Capital from Treasury Stock for $70,000.
d. Treasury Stock for $220,000 and Paid-in Capital from Treasury Stock for $70,000.

Answer 1

To record the sale of 10,000 treasury shares at $29 per share, Stromboli Company should credit Treasury Stock for $220,000 and Paid-in Capital from Treasury Stock for $70,000.

Step-by-step explanation:

The question pertains to treasury stock transactions using the cost method for recording. When Stromboli Company acquired 30,000 shares of its own stock at $22 per share and sold 10,000 of these shares at $29 per share, they need to credit the Treasury Stock account for the cost of the shares sold and any excess received over the cost to the Paid-in Capital from Treasury Stock account.

In this case, the cost of the 10,000 shares sold is 10,000 shares × $22 = $220,000, which is the amount to credit to the Treasury Stock account. Since the shares were sold for $290,000 (10,000 shares × $29), the excess of $70,000 ($290,000 - $220,000) is credited to the Paid-in Capital from Treasury Stock. Therefore, the correct answer is to credit Treasury Stock for $220,000 and Paid-in Capital from Treasury Stock for $70,000.