Question

Grant, Inc. had 40,000 shares of treasury stock ($10 par value) at December 31, 2010, which it acquired at $11 per share. On June 4, 2011, Grant issued 20,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $13 at December 31, 2010, $15 at June 4, 2011, and $18 at December 31, 2011. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2011?

a. $140,000.
b. $180,000.
c. $220,000.
d. $240,000.

Answer 1

The balance of treasury stock on Grant's balance sheet at December 31, 2011, after issuing 20,000 shares to employees, is $220,000.

Step-by-step explanation:

The balance of the treasury stock on Grant's balance sheet at December 31, 2011, can be calculated by considering the cost method used to record treasury stock transactions. Originally, Grant, Inc. had 40,000 shares of treasury stock which they acquired at $11 per share, resulting in a total cost of $440,000. When they issued 20,000 shares to employees, the treasury stock balance decreased. Since the cost method is employed, the reduction in treasury stock is at the cost at which the treasury shares were purchased, not the market price when the options were exercised.

Thus, the calculation is as follows: Original treasury stock balance (40,000 shares at $11 each) is $440,000. The cost of the 20,000 shares issued to employees is 20,000 shares times $11, which equals $220,000. After issuing the shares to the employees, the remaining balance of treasury stock is $440,000 minus $220,000, which equals $220,000.