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Chapter 11: Q11QS (page 516)

On May 3, Zirbal Corporation purchased 4,000 shares of its own stock for \(36,000 cash. On November 4, Zirbal reissued 850 shares of this treasury stock for \)8,500. Prepare the May 3 and November 4 journal entries to record Zirbal’s purchase and reissuance of treasury stock.

Short Answer

Expert verified
  • May 03: Treasury stockis debited by $36,000; Cash is credited by $36,000.
  • November 04: Cash is debited by $8,500; Treasury stock andPaid-in capitalare credited by $7,650 and$850.

Step by step solution

01

Meaning of Treasury Stock

Purchase of own stock is called treasury stock. It is also called a Stock buyback.

02

Recording of Journal entry of Zirbal’s purchase treasury stock

Date

Account and Explanation

Debit ($)

Credit ($)

May 03

Treasury Stock

36,000

Cash

36,000

(To purchased 4,000 treasury shares at $ 9 pershare)

03

Recording of Journal entry of Zirbal’sreissuance of treasury stock

Date

Account and Explanation

Debit ($)

Credit ($)

Nov. 04

Cash

8,500

Treasury Stock

7,650

Paid-In Capital

850

(To received $10 per share for 850 treasuries

Shares costing $9 per share.)

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Most popular questions from this chapter

Question:

Kinkaid Co. is incorporated at the beginning of this year and engages in a number of transactions. The following journal entries impacted its stockholders’ equity during its first year of operations.

Account and explanation

Debit

Credit

A

Cash

Common Stock, \(25 Par Value

Paid-In Capital in Excess of Par Value, Common Stock

300,000

250,000

50,000

B

Organization Expenses

Common Stock, \)25 Par Value

Paid-In Capital in Excess of Par Value, Common Stock.

150,000

125,000

25,000

C

Cash

Accounts Receivable

Building

Notes Payable

Common Stock, \(25 Par Value

Paid-In Capital in Excess of Par Value, Common Stock

43,000

15,000

81,500

59,500

50,000

30,000

D

Cash

Common Stock, \)25 Par Value

Paid-In Capital in Excess of Par Value, Common Stock

120,000

75,000

45,000

Required

1. Explain the transaction(s) underlying each journal entry (a) through (d).

2. How many shares of common stock are outstanding at year-end?

3. What is the amount of minimum legal capital (based on par value) at year-end?

4. What is the total paid-in capital at year-end?

5. What is the book value per share of the common stock at year-end if total paid-in capital plus retained earnings equals $695,000?

Prepare the issuer’s journal entry for each of the following separate transactions.

a. On March 1, Atlantic Co. issues 42,500 shares of \(4 par value common stock for \)297,500 cash.

b. On April 1, OP Co. issues no-par value common stock for \(70,000 cash.

c. On April 6, MPG issues 2,000 shares of \)25 par value common stock for \(45,000 of inventory, \)145,000 of machinery, and acceptance of a $94,000 note payable.

Compute Topp Company’s price-earnings ratio if its common stock has a market value of \(20.54 per share and its EPS is \)3.95. Would an analyst likely consider this stock potentially overpriced, under-priced, or neither? Explain

The stockholders’ equity of TVX Company at the beginning of the day on February 5 follows:

Common stock—\(10 par value, 150,000 shares

authorized, 60,000 shares issued and outstanding . . . . . . . . . . . . . . \) 600,000

Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . . 425,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(1,575,000

On February 5, the directors declare a 20% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock’s market value is \)40 per share on February 5 before the stock dividend. The stock’s market value is $33.40 per share on February 28.

1. Prepare entries to record both the dividend declaration and its distribution.

2. One stockholder owned 800 shares on February 5 before the dividend. Compute the book value per share and total book value of this stockholder’s shares immediately before and after the stock dividend of February 5.

3. Compute the total market value of the investor’s shares in part 2 as of February 5 and February 28

Courts have ruled that a stock dividend is not taxable income to stockholders. What justifies this decision
See all solutions

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