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7 March, 19:55

In year 1, Rim Corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share.

The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries? Check all that apply.

a) Credit paid-in capital treasury shares $500.

b) Debit paid-in capital-treasury shares $500.

c) Debit paid-in capital - treasury shares $200.

d) Debit retained earnings $300.

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  1. 7 March, 23:33
    0
    The correct answers are:

    C-debit paid-in capital treasury shares $200

    D-Debit retained earnings $300

    Explanation:

    The purchase of treasury stock for $10 per share implies that the price paid per share is the par value of each share.

    Upon issue of 100 shares at $12 the following entries are required:

    Dr Cash (100*$12) $1,200

    Cr Treasury stock (100*$10) $1,000

    Cr Paid-in capital in excess of par $200

    However upon issue of 500 share at $9 per share which is $1 less than the par value, hence there is $500 discount on the issue.

    The discount is recorded as follows:

    Dr paid-in capital $200

    Dr Retained earnings $300

    The $200 posted to paid-in capital is the same premium that posted in there earlier when 100 shares.
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