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Treasury Stock The Stockholders' Equity section of Zavala Industries' balance sheet on January 1, 2017, appeared...

Treasury Stock

The Stockholders' Equity section of Zavala Industries' balance sheet on January 1, 2017, appeared as follows:

Common stock, $10 par, 10,000 shares issued and outstanding	$100,000
Additional paid-in capital	50,000
Retained earnings	80,000
Total stockholders’ equity	$230,000

Required:

1. Identify and analyze the effect of each transaction.

The following transactions occurred during 2017:
a. Reacquired 1,800 shares of common stock at $20 per share on July 1.

Activity	Financing
Accounts	Cash Decrease, Treasury Stock Increase
Statement(s)	Balance Sheet only

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How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

Liabilities

Equity

Revenues

–

Expenses

Income

Cash

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b. Reacquired 600 shares of common stock at $18 per share on August 1.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

Liabilities

Equity

Revenues

–

Expenses

Income

2. Assume that the company resold the shares of treasury stock at $28 per share on October 1.
The resale price of the treasury stock is $67,200, which when compared to its original cost, yielded in the amount of $. This is shown on the balance sheet as a(n) in the account.

Solutions

Expert Solution

1. a and b
Activity	Financing
Accounts	Cash decrease, treasury stock increase
Statements	Balance sheet only

Activity	Financing
Accounts	Cash decrease, treasury stock increase
Statements	Balance sheet only

Balance sheet	Income statement
Assets	=	Liabilities	+	Stockholders' equity	Revenues	-	Expenses	=	Net income
Cash				Treasury stock
-36,000				-36,000

Balance sheet	Income statement
Assets	=	Liabilities	+	Stockholders' equity	Revenues	-	Expenses	=	Net income
Cash				Treasury stock
-10,800				-10,800

Resale price	$ 67,200
Less: Purchase price (36,000+10,800)	-46,800
Paid in capital from sale of treasury stock	$ 20,400

The resale price of the treasury stock is $67,200, which when compared to its original cost, yielded from resale of treasury stock in the amount of $20,400. This $20,400 is shown on the balance sheet as a(n) paid in capital from sale of treasury stock in the stockholders' equity account.

ekkarill92 answered 1 year ago

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