Question

Biscayne Bay Water Inc. bottles and distributes spring water. On May 14 of the current year, Biscayne Bay Water Inc. reacquired 26,550 shares of its common stock at $67 per share. On September 6, Biscayne Bay Water Inc. sold 12,750 of the reacquired shares at $73 per share. The remaining 13,800 shares were sold at $64 per share on November 30.

Required:

A.	Journalize the transactions of May 14, September 6, and November 30. Refer to the Chart of Accounts for exact wording of account titles.
B.	What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?
C.	Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet?
D.	For what reasons might Biscayne Bay Water Inc. have purchased the treasury stock?

Chart of Accounts

CHART OF ACCOUNTS
Biscayne Bay Water Inc.
General Ledger
ASSETS 110 Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 193 Equipment 194 Accumulated Depreciation-Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 226 Interest Payable 231 Cash Dividends Payable 241 Salaries Payable 261 Mortgage Note Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Stock Dividends Distributable 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Selling Expenses 534 Rent Expense 535 Insurance Expense 536 Office Supplies Expense 537 Organizational Expenses 562 Depreciation Expense-Equipment 590 Miscellaneous Expense 710 Interest Expense

Journal

A. Journalize the transactions of May 14, September 6, and November 30. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8

Final Questions

B. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?

C. Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet?

D. For what reasons might Biscayne Bay Water Inc. have purchased the treasury stock? Check all that apply.

For reissuance to employees as a bonus according to stock purchase agreements.

To provide shares for resale to employees.

The company wishes to receive more of its own dividends.

To support the market price of the stock.

The company wishes to increase the par value of its stock.

Answer 1

Date	Description	POST.REF.	Debit	Credit
May 14	Treasury Stock		1,778,850
	To Cash			1,778,850
	(26,550 Common Stock reacquired at $67 per share, 26,550*67)
Sep 06	Cash		930,750
	To Treasury Stock			854,250
	To Paid in capital from sale of treasury stock			76,500
	(Being 12,750 treasury stocks of $67 per share sold at $73 per share Amount in treasury stock = 12750*67 Amount in paid in capital   = 12750* (73-67) From sale of treasury stock
Nov 30	Cash		883,200
	Paid in capital from sale of treasury stock		41,400
	To Treasury Stock (13,800 treasury stocks of $67 per share sold at $64 per share Amount in treasury stock = 13,800*64 Amount in paid in capital (Loss) = 13,800* (67-64) From sale of treasury stock			924,600

B.) What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?

Paid in Capital Balance

Profit from the sale of treasury stock on September 06= $76,500 Cr.

Less: Loss on sale of treasury stock on November 30=  -$41,400 Dr.

Balance in Paid in capital of treasury stock=   $35,100 Cr.

C.) Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet?

It is reported under Total paid in capital section of Shareholders’ equity in Liabilities side as shown below:

Liabilities	Amount
Shareholders’ Equity
Common Stock- At par	XXXX
Additional paid in capital common stock in excess of par value	XXXX
Preferred stock- At par	XXXX
Additional paid in capital Preferred stock in excess of par value	XXXX
Paid in capital from sale of treasury stock	XXXX
Total Paid in Capital	XXXXX

D.) For what reasons might Biscayne Bay Water Inc. have purchased the treasury stock? Check all that apply.

Answer: For reissuance to employees as a bonus according to stock purchase agreements.