Question

On October 10, the stockholders’ equity of Sherman Systems appears as follows. Common stock–$10 par value, 77,000 shares authorized, issued, and outstanding $ 770,000 Paid-in capital in excess of par value, common stock 241,000 Retained earnings 904,000 Total stockholders’ equity $ 1,915,000 1. Prepare journal entries to record the following transactions for Sherman Systems. Purchased 5,500 shares of its own common stock at $30 per share on October 11. Sold 1,125 treasury shares on November 1 for $36 cash per share. Sold all remaining treasury shares on November 25 for $25 cash per share. 2. Prepare the stockholders' equity section after the October 11 treasury stock purchase.

Answer 1

See the explanation below:

Step-by-step explanation:

1. Prepare journal entries to record the following transactions for Sherman Systems

a. Purchased 5,500 shares of its own common stock at $30 per share on October 11.

Details Dr ($) Cr ($)

Treasury Stock (5,500 × 30) 165,000

Cash 165,000

To record the repurchase of own common stock

b. Sold 1,125 treasury shares on November 1 for $36 cash per share.

Details Dr ($) Cr ($)

Cash (1,125 × 36) 40,500

Treasury Stock (1,125 × 30) 33,750

Paid-in Capital from Sale of Treasury Stock 6,750

To record the sale of treasury stock.

c. Sold all remaining treasury shares on November 25 for $25 cash per share.

Details Dr ($) Cr ($)

Cash (4,375 × 25) 109,375

Paid-in Capital from Sale of Treasury Stock 6,750

Retained Earnings 15,125

Treasury Stock 99,000 (4,375 × 30) 131,250

To record the sale of the remaining treasury shares

Kindly note that there is a balance of $6,750 in the Treasury Stock Paid-in Capital account. Since it is utilized, the remaining deficit will show in Retained Earnings.

2. Prepare the stockholders' equity section after the October 11 treasury stock purchase.

Details $

77,000 issued authorized common stock–$10 par value 770,000

Paid-in capital in excess of par value, common stock 241,000

Retained earnings 904,000

Treasury stock (165,000)

Total stockholders’ equity 1,750,000

Answer 2

1. Here, we are preparing the journal entries to record the following transactions for Sherman Systems

a. Date Account titles and Explanation Debit Credit

Treasury Stock (5,500 * 30) $165,000

Cash $165,000

(To record the repurchase of own common stock)

b. Date Account titles and Explanation Debit Credit

Cash (1,125 × 36) $40,500

Treasury Stock (1,125 × 30) $33,750

Paid-in Capital from Sale of T. Stock $6,750

(To record the sale of treasury stock)

c. Date Account titles and Explanation Debit Credit

Cash (4,375 × 25) $109,375

Paid-in Capital from Sale of T. Stock $6,750

Retained Earnings $15,125

Treasury Stock (4,375 × $30) $131,250

(To record the sale of the remaining treasury shares)

2. Particulars Amount

issued authorized common stock (77,000*$10) $770,000

Paid-in capital in excess of par value $241,000

Retained earnings $904,000

Treasury stock ($165,000)

Total stockholders’ equity $1,750,000