Question

Lava Lake Inc. bottles and distributes spring water. On February 11 of the current year, Lava Lake reacquired 40,300 shares of its common stock at $42 per share. On April 30, Lava Lake Inc. sold 32,400 of the reacquired shares at $49 per share. On August 22, Lava Lake Inc. sold 7,900 shares at $41 per share.

Required:

A.	Journalize the transactions of February 11, April 30, and August 22. Refer to the Chart of Accounts for exact wording of account titles.
B.	What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?
C.	For what reasons might Lava Lake have purchased the treasury stock?

Answer 1

Answer :-

A.Journalize the transactions of February 11, April 30, and August 22. Refer to the Chart of Accounts for exact wording of account titles.

Date	Account titles & explanation	Debit	Credit
February 11	Treasury stock	= 40,300 * $42 = $1,692,600
	Cash		$1,692,600
April 30	Cash	= 32,400 * $49 = $1,587,600
	Paid in capital from treasury stock		=  $1,587,600 - $1,360,800 = $226,800
	Treasury stock		= 32,400 * $42 = $1,360,800
August 22.	Cash	= 7,900 * $41 = $323,900
	Paid in capital from treasury stock	= 323,900 - 331,800 = $7,900
	Treasury stock		= 7,900 * $42 = $331,800

B . What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?

Here we need to findout the Balance in paid in capital .

Balance in paid in capital = Paid in capital from treasury stock in April - Paid in capital from treasury stock in Auust

= $226,800 - $7,900

= $218,900

Balance in paid in capital = $218,900

C . For what reasons might Lava Lake have purchased the treasury stock?

• The organization may have abundance money accessible. so the organization should need to utilize the money effectiveness by offer repurchase.
• In the event that the organization conceives that the offer cost is underestimated in the market and through that the offer repurchase may recover its cost .
• To increment money related proportions and keep up organization's budgetary wellbeing .