On 7/1/16, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock....

On 7/1/16, ABC purchased 4,000 shares of its own stock from existing stockholders as treasury stock. The cost of the treasury
stock was $5 per share, or $20,000 in total. The effects of this transaction are already shown in the unadjusted trial balance. On 12/31/16,
ABC reissued 2,000 shares of the treasury stock at $8 per share. Record the journal entry required for the reissuance of the treasury stock.
To refresh your memory, treasury stock is usually accounted for at cost. When treasury stock is reissued for more than its cost, a separate
Paid-in Capital-Treasury Stock account should be used to account for the excess proceeds over cost. (See your Principles of Accounting textbook
or Chapter 18 of your Intermediate Accounting textbook for a review.)

Solutions

Expert Solution

Solution:

Treatment of Treasury Stock

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 entry to record reissuance of the treasury stock

Date	General Journal	Debit	Credit
12/31/2016	Cash (2000 Shares x $8)	$16,000
	Treasury Stock (2000 Shares x Cost $5)		$10,000
	Paid in Capital - Treasury Stock (Bal. fig)		$6,000

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