Question

On September 14, 2017, Gayot Company reacquired 12,000 shares of its $1 par value common stock for $40 per share. Gayot uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit____

Answer 1

The journal entry for Gayot Company to record the reacquisition of its stock would include a debit to treasury stock for $480,000 and a credit to cash for the same amount. This reflects the repurchase of 12,000 shares at $40 per share using the cost method.

Step-by-step explanation:

The journal entry to record the reacquisition of the stock should debit the treasury stock account. When a company uses the cost method to account for treasury stock, the cost of the repurchased shares is recorded as a debit to treasury stock, which is a contra-equity account, and a credit to cash for the total cost of the repurchase. In this case, Gayot Company reacquired 12,000 shares at $40 per share, which totals to $480,000. The entry would be a debit to treasury stock for $480,000 and a credit to cash for $480,000.

Here's the journal entry:

• Debit Treasury Stock: $480,000
• Credit Cash: $480,000

This transaction reduces the company's cash balance and also reduces the shareholders' equity on the balance sheet because treasury stock is subtracted from total equity.