Final answer:
To record treasury stock transactions using the cost method, calculate the cost of the treasury shares and use the cost of the oldest shares when selling. Debit Treasury Stock and credit Cash for the purchase of treasury shares, and debit Cash and credit Treasury Stock for the sale of treasury shares.
Step-by-step explanation:
To record the treasury stock transactions using the cost method, we need to first determine the cost of the treasury shares. The cost of treasury shares is calculated by multiplying the number of shares purchased by the purchase price. In this case, for transaction (a), the cost of buying 400 shares of common stock as treasury shares at $63 is $25,200 (400 shares x $63).
To record the transaction, we will debit Treasury Stock for $25,200 and credit Cash for $25,200. This represents the purchase of treasury shares.
For transaction (b), the sale of 130 shares of treasury stock at $59, we need to determine the cost of these treasury shares. Since the cost method assumes that the first shares purchased are the first shares sold, we will use the cost of the oldest shares in the treasury stock account. In this case, the cost of the oldest 130 shares is $16,320 (400 shares x $63).
To record the transaction, we will debit Cash for $7,670 (130 shares x $59) and credit Treasury Stock for $7,670. This represents the sale of treasury shares.
For transaction (c), the sale of 70 treasury shares at $67, we will again use the cost of the oldest shares in the treasury stock account. The cost of the oldest 70 shares is $4,410 (400 shares x $63).
To record the transaction, we will debit Cash for $4,690 (70 shares x $67) and credit Treasury Stock for $4,690. This represents the sale of treasury shares.