Question

The stockholders' equity section of Twilight Time's balance sheet on January 1, 2016, appeared as follows:

Common stock, $2 par, 2,000 shares issued and outstanding $4,000
Additional paid-in capital—Common $1,600
Retained earnings $5,400
Total stockholders' equity $11,000
On March 1, 2016, Twilight reacquired 800 shares of common stock at $10 per share. Twilight sold 400 of the treasury shares on November 15 for $12 per share. The entry to record the sale on November 15 would show:
a. a decrease in Treasury Stock, $4,000
b. a decrease in Cash, $4,800
c. an increase in Gain on Sale of Treasury Stock, $800
d. an increase in Common Stock, $4,800

Answer 1

The entry for Twilight Time's sale of 400 treasury shares includes an increase in Cash of $4,800, a reduction of the Treasury Stock account by $4,000, and records a Gain on Sale of Treasury Stock of $800.

Step-by-step explanation:

The entry to record the sale of 400 treasury shares on November 15 for Twilight Time would show an increase in Cash of $4,800, which is the proceeds from the sale (400 shares × $12 per share). The decrease in Treasury Stock would be at the cost of the shares when they were reacquired, which is $8,000 (800 shares × $10 per share).

The difference between the cash received from the sale ($4,800) and the cost of the treasury shares sold (400 shares × $10 = $4,000) would be recorded as a gain, specifically an increase in Gain on Sale of Treasury Stock of $800.