In: Accounting
Joe Dumars Company has outstanding 40,000 shares of $5 par common stock which had been issued at $30 per share. Joe Dumars then entered into the following transactions.
.1. Purchased 5,000 treasury shares at $45 per share.
2. Resold 2,000 of the treasury shares at $49 per share.
3. Resold 500 of the treasury shares at $40 per share.
Indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method.
Asset | Liabilities | Stockholders' equity | paid in capital | retained earnings | Net income | |
1) | Decrease by $2250000 | No effect | Decrease by $2250000 | No effect | No effect | No effect |
2) | Increase by $98000 | No effect | Increase by $90000 | Increase by $8000 | No effect | No effect |
3) | Increase by $20000 | No effect | increase by $22500 | Decrease by $2500 | No effect | No effect |
Journal | Debit ($) | Credit ($) | |
1) | Treasury stock | 2250000 | |
Cash | 2250000 | ||
2) | Cash | 98000 | |
Treasury Stock | 90000 | ||
Paid in capital - treasury stock | 8000 | ||
3) | Cash | 20000 | |
paid in capital | 2500 | ||
Treasury Stock | 22500 |