Question

Lawn Spray Inc. develops and produces spraying equipment for lawn maintenance and industrial uses. On January 31 of the current year, Lawn Spray Inc. reacquired 17,200 shares of its common stock at $39 per share. On June 14, 10,800 of the reacquired shares were sold at $42 per share, and on November 23,4,100 of the reacquired shares were sold at $45.

a. Journalize the transactions of January 31, June 14, and November 23. For a compound transaction, if an amount box does not require an entry,
b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? X
c. What is the balance in Treasury Stock on December 31 of the current year?
d. How will the balance in Treasury Stock be reported on the balance sheet?

Answer 1

To journalize Lawn Spray Inc.'s stock transactions and calculate the balances you must account for the purchase and sale of treasury shares, then determine the balance in Paid-In Capital and Treasury Stock on the balance sheet as of December 31.

Step-by-step explanation:

Lawn Spray Inc. is involved in a series of stock transactions that involve reacquiring and selling their own common shares. Here's how to journalize each transaction and calculate the balance in Paid-In Capital from Sale of Treasury Stock and the balance in Treasury Stock as of December 31 of the current year:

January 31 Transaction:

Treasury Stock .............. 669,800
Cash ................................ 669,800
(17,200 shares × $39 per share)

June 14 Transaction:

Cash .............................. 453,600
Treasury Stock .............. 421,200
Paid-In Capital from Sale of Treasury Stock ........ 32,400
(10,800 shares × $42 per share)

November 23 Transaction:

Cash ................................ 184,500
Treasury Stock .............. 159,900
Paid-In Capital from Sale of Treasury Stock ........ 24,600
(4,100 shares × $45 per share)

Calculations:

b. The balance in Paid-In Capital from Sale of Treasury Stock on December 31 would be the sum of the gains from the sales on June 14 and November 23: $32,400 + $24,600 = $57,000.

c. The balance in Treasury Stock on December 31 would be the original purchase amount minus the cost of shares sold: $669,800 - ($39 × 10,800 + $39 × 4,100) = $669,800 - $421,200 - $159,900 = $88,700.

d. The balance in Treasury Stock is reported on the balance sheet as a contra equity account. It decreases total shareholders' equity.