Question

Groundcover, Inc. had never had a treasury stock transaction prior to 2016. It experienced the following treasury stock transactions during 2016: 4/1/2016:Reacquired 1,000 shares of its own $5 par common stock, originally sold at $12 a share, for $10 a share. This was the first time that Groundcover had reacquired its own stock. 4/8/2016:Reissued 400 shares at $8 a share. 5/2/2016:Reissued 500 shares at $13 a share. 5/10/2016:Retired the remaining 100 shares. Assume the cost method is used. Refer to Exhibit 15-9. The entry to record the reissuance of 400 shares on 4/8/2016 would include a

Answer 1

Groundcover, Inc.

Journal Entry to record the reissuance of 400 shares on April 8, 2016 would include (using the cost method):

Apr. 8 Debit Cash $3,200

Credit Treasury Stock $3,200

To record the reissuance of 400 shares at $8 a share.

Step-by-step explanation:

a) Data and Analysis:

Apr. 1 Treasury Stock $10,000 Cash $10,000

Apr. 8 Cash $3,200 Treasury Stock $3,200

May 2 Cash $6,500 Treasury Stock $6,500

b) There are two methods for recording Treasury Stock transactions. One is the cost method. This method ignores the par value and the difference between the par value and the cost. It uses the cost to record the repurchase and resale of treasury shares. The second method is the par value method. This method differentiates the par value and cost for both repurchase and resale of treasury stock shares. The differences are recorded in the Additional Paid-in Capital account so that only the par values are recorded in the Treasury account.