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Exercise 11-10 Recording and reporting treasury stock transactions LO P3 On October 10, the stockholders’ equity...

Exercise 11-10 Recording and reporting treasury stock transactions LO P3

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

Common stock–$10 par value, 94,000 shares
authorized, issued, and outstanding
$ 940,000
Paid-in capital in excess of par value, common stock 326,000
Retained earnings 1,040,000
Total stockholders’ equity $ 2,306,000


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

  1. Purchased 7,200 shares of its own common stock at $47 per share on October 11.
  2. Sold 1,550 treasury shares on November 1 for $53 cash per share.
  3. Sold all remaining treasury shares on November 25 for $42 cash per share.



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

Solutions

Expert Solution

Journal entry :
1
Date accounts & explanation debit credit
Treasury Stock (7200*47) $     338,400
Cash $     338,400
(To record purchase of treasury stock)
Cash (1550*53) $       82,150
Treasury Stock (1550*47) $       72,850
Paid in capital from sale of treasury stock $         9,300
(To record Sale of treasury stock)
Cash (5650*42) $     237,300
Paid in capital from sale of treasury stock $         9,300
Retained earnings $       18,950
Treasury Stock (5650*47) $     265,550
(To record Sale of treasury Stock)
2

Revised equity section of balance sheet after October 11

Common Stock $10 par $        940,000
Paid in capital in excess of par value, Common Stock $        326,000
Total contributed capital $     1,266,000
Retained earnings $     1,040,000
Total $     2,306,000
Less: Cost of treasury stock (7200*47) -$        338,400
Total Stockholder's equity $     1,967,600

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