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On October 10, the stockholders’ equity of Sherman Systems appears as follows.    Common stock–$10 par...

On October 10, the stockholders’ equity of Sherman Systems appears as follows.
  

Common stock–$10 par value, 87,000 shares
authorized, issued, and outstanding		 $ 870,000
Paid-in capital in excess of par value, common stock 291,000
Retained earnings 984,000
Total stockholders’ equity $ 2,145,000


1. Prepare journal entries to record the following transactions for Sherman Systems.

  1. Purchased 6,500 shares of its own common stock at $40 per share on October 11.
  2. Sold 1,375 treasury shares on November 1 for $46 cash per share.
  3. Sold all remaining treasury shares on November 25 for $35 cash per share.



2. Prepare the revised equity section of its balance sheet after the October 11 treasury stock purchase.

Solutions

Expert Solution

Journal entries:
S.no. Accounts title and explanation Debit $ Credit $
a. Treasury stock (6500*40) 2,60,000
   Cash account 2,60,000
(for treasury stock purchased)
b. Cash account (1375*46) 63250
     Treasury stock (1375*40) 55000
     Paid in capital-Treasury stock 8250
(for resale of treasury stock at gain)
c. Cash account (5125*35) 179375
Paid in capital-treasury stock 8250
Retained earnings 17375
     Treasury stock (5125*40) 205000
(for resale of treasury stock)
Equity Section after Oct11.
Common Stock (87,000 shares @10) 8,70,000
Paid in capital in excess of par value 2,91,000
Retained earnings 9,84,000
Total Paid in capital 21,45,000
Less: Treasury stock (6500*40) -2,60,000
Total Stockhodler's equity 18,85,000

ekkarill92 answered 2 years ago
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