Question

Nasser Corporation is authorized to issue 80,000 shares of $5 par value common stock. During 2008, Lindsey Hunter took part in the following selected transactions.

1. Issued 10,000 shares of stock at $50 per share, less costs related to the issuance of

the stock totaling $10,000.
2. Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded on a national stock exchange at approximately $48 per share on the date of issuance.
3. Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased were issued in 2003 at $40 per share.

4. Sold 100 shares of treasury stock at $40 per share.

5. Sold 100 shares of treasury stock at $46 per share

6. Sold 100 shares of treasury stock at $41 per share

7. Sold 100 shares of treasury stock at $39 per share

The journal entry of transaction 7 is:

	a.	Cash …………………………………………………                3,900 Paid-in Capital from Treasury Stock………………                300 Retained Earnings………………………………….                100                   Treasury Stock…………………………………………………………     4,300
	b.	Cash …………………………………………………                3,900 Paid-in Capital from Treasury Stock………………                400                   Treasury Stock…………………………………………………………     4,300
	c.	Cash …………………………………………………                3,900 Retained Earnings………………………………….                 400                   Treasury Stock…………………………………………………………     4,300
	d.	Cash …………………………………………………                3,900 Paid-in Capital from Treasury Stock………………                100 Retained Earnings………………………………….                300                   Treasury Stock…………………………………………………………     4,300

Answer 1

Here treasury shares are sold for less than cost. so, lesser amount should adjust with paid in capital from treasury shares if available and balance will adjust with retained earnings. to calculate balance in paid in capital

Paid in capital from sale of 100 treasury shares for $46 (100*$3)	$   300
Less: Paid capital from treasury shares adjusted against $41 sale (100*$2)	$ (200)
Balance in paid in capital from treasury shares	$   100

now balance $300 will adjust with retained earnings.

So, answer will be: D

Cash …………………………………………………                3,900 Paid-in Capital from Treasury Stock………………                100 Retained Earnings………………………………….                300                   Treasury Stock…………………………………………………………     4,300

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