Question

Mystic Lake Inc. bottles and distributes spring water. On July 9 of the current year, Mystic Lake reacquired 60,000 shares of its common stock at $42 per share. On September 22, Mystic Lake sold 45,000 of the reacquired shares at $51 per share. The remaining 15,000 shares were sold at $40 per share on November 23.

a. Journalize the transactions of July 9, September 22, and November 23. If an amount box does not require an entry, leave it blank.

Jul9 .............................

       .............................

Sep22 .............................

          .............................

           .............................

Nov23 .............................

           .............................

            .............................

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

Answer 1

a.

Date	General Journal	Debit	Credit
July 9	Treasury stock	$2,520,000
	Cash		$2,520,000
Sep 22	Cash	$2,295,000
	Treasury stock		$1,890,000
	Paid in capital from treasury stock		$405,000
Nov 23	Cash	$600,000
	Paid in capital from treasury stock	$30,000
	Treasury stock		$630,000

(i) On July 9, Treasury stock will be debited by = Number of shares purchased x Cost per share

= 60,000 x 42

= $2,520,000

(ii) for September 22 Calculations:

Debit to cash = Number of shares x Selling price per share

= 45,000 x 51

= $2,295,000

Credit to treasury stock = Number of shares sold x Cost per shares

= 45,000 x 42

= $1,890,000

Credit to paid in capital from treasury stock = Number of shares sold x (Selling price per share- cost per share)

= 45,000 x (51-42)

= $405,000

(iii) For November 23 calculations:

Debit to cash = Number of shares x Selling price per share

= 15,000 x 40

= $600,000

Credit to treasury stock = Number of shares sold x Cost per shares

= 15,000 x 42

= $630,000

Debit to paid in capital from treasury stock = Number of shares sold x ( cost per share- Selling price per share)

= 15,000 x (42-40)

= $30,000

b.

Balance in paid in capital from sale of treasury stock on December 31 = Paid in capital from treasury stock credit balance- Paid in capital from treasury stock debit balance

=405,000-30,000

= $375,000