Question

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

a. Debit Treasury Stock for $32,000.
b. Debit Common Stock for $30,000.
c. Debit Common Stock for $32,000.
d. Debit Treasury Stock for $2,000.

Answer 1

When a company purchases its own stock as treasury stock, the entry to record the transaction includes:a. Debit Treasury Stock for $32,000.

What is recorded here

The purchase of 2,000 shares at $16 per share totals $32,000 (2,000 shares * $16 per share = $32,000).

Debiting the Treasury Stock account reduces stockholders' equity as treasury stock is a contra equity account representing the company's own shares held.

Therefore, option a. Debit Treasury Stock for $32,000 is the correct entry to record the purchase of the company's own common stock as treasury stock.