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In: Accounting

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 1,400 shares of common stock at $20 per share on July 1.

Activity
Accounts
Statement(s)

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

b. Reacquired 850 shares of common stock at $18 per share on August 1.

Activity
Accounts
Statement(s)

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

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 $63,000, 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

Answer to 1 a. Reacquired 1,400 shares of common stock at $20 per share on July 1.

This will lead to reduction in Asset Side by 1400 x 20 =$28000 and also in liability side

same amount of reduction by $28000 . There will not be any affect on income or expenses account.

In the liability side common stock will reduce by $14000 and share premium account to reduce by $14000.

Answer to 1 b. Reacquired 850 shares of common stock at $18 per share on August 1.

This will lead to reduction in Asset Side by 850 x 18 =$15300 and also in liability side

same amount of reduction by $15300 . There will not be affect on income or expenses account.

In the liability side common stock will reduce by $8500 and share premium account to reduce by $6800.

Answer to 2 Number of Shares resold = $63000

$28

= 2250

Amount of share premium = 2250 (28-10) = $40500

Then, when the resale price of the treasury stock is $63,000, which when compared to its original cost, yielded Share Premium in the amount of $40500. This share premium is shown on the balance sheet as a(n) increase in the Liability account.

ekkarill92 answered 2 years ago
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