Question

In 2012, Hobbs Corp. acquired 9,000 shares of its own $1 par value common stock at $18 per share. In 2013, Hobbs issued 6,000 of these shares at $25 per share. Hobbs uses the cost method to account for its treasury stock transactions. What accounts and what amounts should Hobbs credit in 2013 to record the issuance of the 6,000 shares?

Treasury Additional Retained Common
Stock Paid-in Capital Earnings Stock
a. $108,000 $105,000
b. $108,000 $42,000
c. $144,000 $6,000
d. $102,000 $42,000 $6,000

Answer 1

Hobbs Corp. should credit $102,000 to Treasury Stock, $42,000 to Additional Paid-in Capital, and $6,000 to Common Stock to record the issuance of the 6,000 shares in 2013.

Step-by-step explanation:

To record the issuance of the 6,000 shares in 2013, Hobbs Corp. should credit the Treasury Stock account for the cost of the shares repurchased, which is $108,000. Additionally, Hobbs should credit the Additional Paid-in Capital account for the difference between the cost and the par value of the shares, which is $42,000. Therefore, the correct answer is option d: $102,000 to Treasury Stock, $42,000 to Additional Paid-in Capital, and $6,000 to Common Stock.