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In: Accounting

Problem#4 The stockholders equity section of Carey Co.'s balance sheet at December 31, 2014, was as...

Problem#4

The stockholders equity section of Carey Co.'s balance sheet at December 31, 2014, was as follows:

Common stock--$10 par (authorized 1,000,000 shares, issued and outstanding 600,000 shares) $6,000,000

Paid-in capital in excess of par $1,500,000

Retained earnings $3,250,000

Total $10,750,000

Instructions: Prepare journal entries (1, 2 and 4) and show proper disclosure (3) (stockholders equity section of b/s) to reflect the following treasury stock transactions showing how each is accounted for under the cost method. (show computations)

1. On January 4, 2015 having idle cash, Carey Co repurchased 25,000 shares of its out-standing stock for $500,000

2. On March 4, Carey sold 5,000 of these reqcquired shares at $24 per share.

3. Show the proper disclosures in the stockholders equity section of the balance sheet issued at the end of the firs quarter, March 31, 2015. Assume net income of $100,000 during the first quarter.

4. On June 30, 2015 the firm sold 10,000 of the reacquired shares for $17 per share.

Expert Solution

Solution:

Requirement 1:

Date	Account Titles and Explanation	Debit	Credit
Jan. 4	Treasury Stock [ 25000 * 20 ]	$ 500,000
	Cash		$ 500,000
	(To record Treasury Stock purchased)

Requirement 2:

Date	Account Titles and Explanation	Debit	Credit
Mar. 4	Cash [5000*24]	$ 120,000
	Additional Paid-In Cap - Treasury Stock		$ 20,000
	Treasury Stock [5000*20]		$ 100,000
	(To record treasury stock resold)

Requirement 3:

Carey Co.`s
Balance Sheet (partial)
For the first quarter ended March 31, 2015
Stockholder's equity :
Common stock--$10 par (authorized 1,000,000 shares, issued and outstanding 600,000 shares)		$ 6,000,000
Add: Additional Paid in capital in excess of par:
Common Stock	$ 1,500,000
Treasury Stock[5000*4]	$ 20,000
Total Additional Paid in capital		$ 1,520,000
Total paid in capital		$ 7,520,000
Retained earnings(3250000+100000)		$ 3,350,000
Subtotal		$ 10,870,000
Less: Treasury Stock ( 20000*$20)		$ (400,000)

Total stockholder's Equity		$ 10,470,000

Notes:

1) Retained Earnings on March 31, 2015 = Opening Balance + Net Income = 3250000+100000 = 3,350,000.

Requirement 4:

Date	Account Titles and Explanation	Debit	Credit
June. 30	Cash [10000*$17]	$ 170,000
	Additional Paid-In Cap - Treasury Stock	$ 30,000
	Treasury Stock [10000*$20]		$ 200,000
	(To record treasury stock resold)

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