Question

Inc. purchased 10 shares of its own $5 par value common stock for $20 per share. The journal entry to record this transaction would include a (debit/credit) to the treasury stock account in the amount of $.

A) Debit; $200
B) Credit; $200
C) Debit; $100
D) Credit; $100

Answer 1

The correct journal entry records a debit to the treasury stock account because treasury stock represents a company buying back its shares. The total amount debited is the cost of the shares bought, which in this case is $200.

Step-by-step explanation:

When a company purchases its own shares, the transaction is recorded as treasury stock, which is a contra equity account. The shares were purchased for $20 per share and there were 10 shares bought.

Therefore, the total cost of the treasury shares is 10 shares × $20 per share, which equals $200. The correct journal entry would be a debit to the treasury stock account in the amount of $200.

The answer to the student's question is: A) Debit; $200