Question

In: Accounting

Company paid $60,000 to buy back 12,000 shares of its $1 par value ordinary shares.

Company paid $60,000 to buy back 12,000 shares of its $1 par value ordinary shares. These shares were sold later at a selling price of $7 per share. The entry to record the sale includes a

a. credit to Share Premium–Treasury for $24,000.

b. credit to Retained Earnings for $24,000.

c. debit to Share Premium–Treasury for $60,000.

d. debit to Retained Earnings for $60,000.

Solutions

Expert Solution

Cost of treasury shares= $60,000

Number of treasury shares = 12,000

Selling price per treasury share = $7

Cash received from sale of treasury share = Number of treasury shares x Selling price per treasury share

= 12,000 x 7

= $84,000

Amount credited to share premium- treasury = Cash received from sale of treasury share - Cost of treasury shares

= 84,000-60,000

= $24,000

The following entry will be made to record sale of treasury share:

General Journal Debit Credit
Cash 84,000
Treasury share 60,000
Share premium- treasury 24,000

Correct option is a.


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