Question

On October 10, the stockholder's equity of Sherman Systems appears as follows:

Common stock–$10 par value, 72,000 shares authorized,
issued, and outstanding $720,000
Paid-in capital in excess of par value, common stock 216,000
Retained earnings 864,000
Total stockholders’ equity $1,800,000
1. Prepare journal entries to record the following transactions for Sherman Systems.
1A. Purchased 5,000 shares of its own common stock at $25 per share on October 11.
1B. Sold 1,000 treasury shares on November 1 for $31 cash per share.
1C. Sold all remaining treasury shares on November 25 for $20 cash per share.
2. Prepare the revised equity section of its balance sheet after the October 11 treasury stock purchase.

Answer 1

Answer and Explanation:

The journal entries are shown below:

1A. Treasury Stock (5,000 × $25) $75,000

To Cash $75,000

(Being the purchased of its own common stock is recorded)

1B. Cash (1,000 × $31 shares) $31,000

To Treasury Stock (1,000 × $25) $25,000

To Paid-in Capital from Sale of Treasury Stock $6,000

(Being the sale of treasury stock is recorded)

1C. Cash (4,000 × $20) $80,000

Paid-in Capital from Sale of Treasury Stock $6,000

Retained Earnings $14,000

To Treasury Stock 99,000 (4,000 × 25) $100,000

(Being the sale of treasury stock is recorded)

2. The preparation of the revised equity section of its balance sheet is presented below:

Common stock 36,000 shares authorized, issued $720,000

Paid in capital in excess of par value

, common stock. $216,000

Retained Earnings. $864,000

Less: Treasury Stock - 5,000 shares -$75,000 $789,000

Total stockholders' equity $1,725,000