Question

On January 4, of the Current Year Berta Inc. reacquired 5,000 shares of its common stock at $100 per share. On May 17 Berta Sold 4,000 of the reaquired shares at $120 per share. The remaining 1,000 shares were sold at $98 per share on December 15.

REQUIRED:
1. Journalize the transaction of January 4, and December 15.

2.What is the balance in Paid-in Capital from sale of treasury stock on December 31, of the current year?

3. Why might Barefoot Bay Inc, have purchased treasury stock?

Answer 1

(1.)

DATE	PARTICULAR	DEBIT	CREDIT
JAN 4	Treasury Stock account (Dr.)	$500000
	To Cash account		$500000

(5000 *100)

DATE	PARTICULAR	DEBIT	CREDIT
MAY 17	Cash account	$480000
	To Treasury stock account		$400000
	To Paid in Capital from treasury stock		$80000

cash = 4000 * $120

Treasury stock = 4000 * 100

Paid in capital from treasury stock = 4000 * 20

DATE	PARTICULAR	DEBIT	CREDIT
December 15	Cash account	$98000
	Paid in capital from treasury stock account	$2000
	To Treasury stock account		$100000

cash = 1000 * $98

Paid in capital from treasury stock = 1000 * $2

Treasury stock = 1000 * $100

(2)

paid in capital from treasury stock on May 17	$80000
Less decrease in paid in capital on 15 December	$2000
Balance in paid in capital from treasury stock on 31 December	$78000

(3.)

(a.) Barefoot Bay Inc, might have bought treasury stock to form a reserve of stock to raise funds for future investments.

(b) Barefoot Bay Inc, might have extra cash. This cash can be used to buy treasury stock. When the company needs the money it can sell the treasury stock.

(c) Barefoot Bay Inc, stocks might be undervalued. This might be the case as the company is able to increase the paid in capital from treasury stock on May 17, and even after selling the treasury stock at a discount on December 15, the company is able to increase the overall paid in capital of the company by $78000.

A thumbs up would be appreciated if you like my efforts...

GOOD LUCK!!!