On January 1, Lorain Corporation had 2,000 shares of $5 par common stock authorized and outstanding....

On January 1, Lorain Corporation had 2,000 shares of $5 par common stock authorized and outstanding. These shares were originally issued at a price of $26 per share. In addition, 500 shares of $50 par preferred stock were outstanding. These were issued at a price of $75 per share. During the year, the following stock transactions occurred:

1. March 3: Lorain reacquired 100 shares of its own common stock at a cost of $24 per share.

2. April 27: It sold 25 shares of the common stock acquired on March 3 for $33 per share.

3. July 10: It sold 25 shares of the common stock acquired on March 3 for $22 per share.

4. October 12: It retired the remaining shares acquired on March 3.

Solutions

Expert Solution

Solution:

It is assumed that the company is following Cost method for Purchase and Sale of Treasury Stock.

Sometimes companies buyback their own shares (Treasury Stock) with the intention to either retire them permanently or reissue them at a future date. Treatment of Treasury Stock Under cost method

Treasury Stock

Treasury Stock is the shares that a company repurchased from the market or from its shareholders.

Under cost method, the cost of shares purchased is debited to Treasury Stock Account.

On sale of treasury stock

(i) If selling price is higher than cost

- the relevant COST of treasury stock share is credited to Treasury Stock Account and Cash is debited with the total selling price and the difference is credited to Paid In Capital from treasury stock.

(ii) If selling price is lower than cost

Debit: Cash (with the selling price)

Debit: Retained Earnings (Difference between selling price and cost)

Credit: Treasury Stock (with the cost of share)

Journal Entries will be as follows:

Date	General Journal	Debit	Credit
March'3	Treasury Stock (100 Shares x $24)	$2,400
	Cash		$2,400

April'27	Cash (25 shares x 33)	$825
	Treasury Stock (25 shares x Cost $24)		$600
	Additional Paid in Capital - Treasury Stock (Bal fig)		$225

July'10	Cash (25 shares x 22)	$550
	Additional Paid in Capital - Treasury Stock (Bal. fig)	$50
	Treasury Stock (25 shares x Cost $24)		$600

October'12	Common Stock (50 Shares x Par Value $5)	$250
	Additional Paid in Capital - Treasury Stock (225 - 50)	$175
	Retained Earnings (Bal. fig)	$775
	Treasury Stock (2400 -600 - 600)		$1,200

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

On January 1, 2016, Alpha Corporation had 300,000 shares of common stock outstanding with a par...

On January 1, 2016, Alpha Corporation had 300,000 shares of common stock outstanding with a par value of $3 per share. On March 31, Alpha Corporation declared a 10% stock dividend when the market value was $8 per share. Use this information to prepare the General Journal entry (without explanation) for March 31. If no entry is required then write "No Entry Required."

On January 1, Hamblin Corporation had 120,000 shares of $10 par value common stock outstanding. On...

On January 1, Hamblin Corporation had 120,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 per share on March 17. The entry to record the transaction of March 17 would include a Group of answer choices debit to Common Stock Dividends Distributable for $120,000. credit to Stock Dividends for $36,000. credit to Cash for $156,000. credit...

On January 1, 2018, Edward Corporation had 29,000 shares of $5 par value common stock and...

On January 1, 2018, Edward Corporation had 29,000 shares of $5 par value common stock and 29,000 shares of 7%, $100 par value convertible preferred stock outstanding. The preferred shares carried a 2-for-1 conversion privilege. On October 1, 2018, all of the preferred shares were converted to common. What number of shares must Edward use in computing basic earnings per share at December 31, 2018?

Preferred Stock- 5% $11 Par Value 5,500 shares authorized 4,000 shares issued and outstanding Common Stock...

Preferred Stock- 5% $11 Par Value 5,500 shares authorized 4,000 shares issued and outstanding Common Stock - $.20 Par Value 2,000,000 shares authorized, 1,650,000 shares issued and outstanding Requirement 1. Sapphire declares cash dividends of $28,000 for 2018. How much of the dividends goes to preferred? stockholders? How much goes to common? stockholders? ?(Complete all input boxes. Enter? "0" for any zero? amounts.) Sapphire dividend would be divided between preferred and common stockholders in this? manner: Total Dividend Dividend to...

On January 1, Novak Corp. had 99,000 shares of no-par common stock issued and outstanding. The...

On January 1, Novak Corp. had 99,000 shares of no-par common stock issued and outstanding. The stock has a stated value of $4 per share. During the year, the following occurred. Apr. 1 Issued 25,500 additional shares of common stock for $17 per share. June 15 Declared a cash dividend of $1 per share to stockholders of record on June 30. July 10 Paid the $1 cash dividend. Dec. 1 Issued 3,000 additional shares of common stock for $19 per...

On January 1 Windsor, Inc. had 74,000 shares of no-par common stock issued and outstanding. The...

On January 1 Windsor, Inc. had 74,000 shares of no-par common stock issued and outstanding. The stock has a stated value of $5 per share. During the year, the following transactions occurred: Apr. 1 Issued 11,000 additional shares of common stock for $10 per share. June 15 Declared a cash dividend of $1.00 per share to stockholders of record on June 30. July 10 Paid the $1.00 cash dividend. Dec. 1 Issued 6,000 additional shares of common stock for $14...

Walden Corporation had 1,000,000 shares of authorized common stock; 200,000 shares issued, and 120,000 shares outstanding...

Walden Corporation had 1,000,000 shares of authorized common stock; 200,000 shares issued, and 120,000 shares outstanding as of January 1, 2019. During 2019 Walden reported EBIT of $2,000,000 and net income of $1,575,000 and paid out $300,000 in common dividends to the common stockholders. Also, on October 1, 2019 Walden repurchased 20,000 shares of the outstanding common stock. What is the weighted average number of shares Walden would use in computing Basic EPS for 2019?

. Excalibur Corporation is authorized to issue 3,000,000 shares of $5 par value common stock. During...

. Excalibur Corporation is authorized to issue 3,000,000 shares of $5 par value common stock. During 2019, its first year of operation, the company has the following stock transactions. Jan. 15 Issued 600,000 shares of stock at $13 per share. July 2 Issued 100,000 shares of stock in exchange for a building. The building had an asking price of $1,000,000. The stock is currently selling at $9 per share. Sept. 5 Purchased 5,000 shares of common stock for the treasury...

On January 1, Blue Spruce Corp. had 63,300 shares of no-par common stock issued and outstanding....

On January 1, Blue Spruce Corp. had 63,300 shares of no-par common stock issued and outstanding. The stock has a stated value of $4 per share. During the year, the following transactions occurred. Apr. 1 Issued 19,800 additional shares of common stock for $13 per share. June 15 Declared a cash dividend of $1.65 per share to stockholders of record on June 30. July 10 Paid the $1.65 cash dividend. Dec. 1 Issued 8,800 additional shares of common stock for...

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding....

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding. During October, Year 2, the company’s board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $56 per share. In recording this transaction, what amount will be debited to Retained earnings in the journal entry to record the stock dividend?

Subjects