ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 11
Reporting & Analyzing Equity
Dr. Fred Barbee

Solution to Problem #1

A company's treasury stock transactions for the current year are as follows: (1) 1,000 shares of its common stock were purchased on June 1 for $40,000; (2) On July 1 it reissued 500 of these shares at $45 per share; (3) On August 1 it reissued the 500 remaining treasury shares at $38 per share.

Required:

  1. Prepare the journal entries required to record these transactions.
  2. Calculate the balance in Contributed Capital, Treasury Stock, on September 1 (assume its beginning-year balance is zero).
Solution

Journal Entry For Transaction #1
Treasury Stock, Common 40,000  
Cash
   40,000

Journal Entry For Transaction #2
Cash (500 x $45) 22,500  
Treasury Stock, Common (500 x $40)
   20,000
Contributed Capital, Treasury Stock
   2,500

Journal Entry For Transaction #3
Cash (500 x $38) 19,000  
Contributed Capital, Treasury Stock 1,000  
Treasury Stock, Common (500 x $40)
   20,000

Balance in Contributed Capital, Treasury Stock on September 1
There is a credit balance in Contributed Capital, Treasury Stock of $1,500: $2,500 - $1,000 = $1,500