Question

Company bought 1,000 shares of its own stock for $8,000. Later it re-issued the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n)______

A) $2,000 credit to Additional Paid-in Capital
B) $8,000 credit to Treasury Stock
C) $10,000 credit to Treasury Stock
D) $2,000 debit to Additional Paid-in Capital
E) $10,000 debit to Treasury Stock

Answer 1

The correct journal entry for the re-issuance of 1,000 shares of treasury stock includes a $2,000 credit to Additional Paid-in Capital.

Step-by-step explanation:

The journal entry to record the sale of treasury stock when a company bought 1,000 shares of its own stock for $8,000 and later re-issued them for $10,000 includes a $2,000 credit to Additional Paid-in Capital and a $8,000 credit to Treasury Stock.

The sale price exceeds the cost of the treasury shares, resulting in the $2,000 excess being credited to Additional Paid-in Capital, which represents the capital that is paid in by investors over and above the par value of the stock. Therefore, the correct answer is A) $2,000 credit to Additional Paid-in Capital.

To further clarify, the journal entry would look like this:

• Debit: Cash $10,000
• Credit: Treasury Stock $8,000
• Credit: Additional Paid-in Capital $2,000

This reflects the cash inflow and the exit from treasury stock along with the additional capital received over the cost of the treasury stock.