Question

On November 1, Year 1 Dixon Company paid $20 per share to buy back 1,000 shares of its $8 par value common stock. The stock had originally sold for $15. Which of the following shows how the purchase of the treasury stock will affect Dixon’s financial statements on November 1, Year 1?

Answer 1

Assets ($20,000) = Treasury Stock $20,000

Step-by-step explanation:

The Journal entry is shown below:-

Treasury Stock Dr. $20,000

To Cash Account $20,000

(Being purchase of treasury stock is recorded)

It is a cash outflow in Financing activities.

Therefore to record the purchase of treasury stock we simply debited the treasury stock as it reduces the equity and we credited the cash account as reduces the assets.