Question

On January 1, 2005, Marcy Company purchased 1,000 shares of its own common stock for $22,000. On February 1, 2005, they sold 600 of these shares for $25 per share, and on March 1, 2005, they sold the remaining 400 shares for $15 per share. The journal entry required on March 1 will include: A) credit Contributed Capital, Treasury Stock, $1,800 B) debit Retained Earnings for $1,800 C) debit Retained Earnings for $2,800 D) debit Contributed Capital, Treasury Stock, $2,800 E) debit Contributed Capital, Treasury Stock, $1,800

Answer 1

Answer: E) debit Contributed Capital, Treasury Stock, $1,800

Step-by-step explanation:

Treasury stock was bought at price of;

= 22,000/1,000

= $22

Sold 600 for $25 so they made a profit of;

= (25 - 22) * 600

= $1,800

This gain was sent to Contributed Capital, Treasury Stock.

Now that stock is to be sold on March 1, it is sold at $15. Loss from initial purchase is;

= ( 22 - 15) * 400

= $2,800

Debit Contributed Capital, Treasury Stock of the maximum amount it can be debited of to reflect this loss which would be $1,800 which was gained in the February purchase. The rest of the loss will go to Retained earnings.