Question

Treasury Stock Transactions

Mystic Lake Inc. bottles and distributes spring water. On July 9 of the current year, Mystic Lake reacquired 5,400 shares of its common stock at $71 per share. On September 22, Mystic Lake sold 3,800 of the reacquired shares at $79 per share. The remaining 1,600 shares were sold at $68 per share on November 23.

a. Journalize the transactions of July 9, September 22, and November 23. If an amount box does not require an entry, leave it blank.

July 9

Sept. 22

Nov. 23

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

c. For what reasons might Mystic Lake Inc. have purchased the treasury stock?

Answer 1

Journal Entries:

Date	Particulars	Debit	Credit
Jul-09	Treasury stock a/c (5,400*$71)	383,400
	To Cash a/c		383,400
Sep-22	Cash a/c (3,800*79)	300,200
	To Treasury stock a/c (3,800*71)		269,800
	To Paid-in-capital from Treasury stock		30,400
Nov-23	Cash a/c (1,600*68)	108,800
	Paid-in-capital from treasury stock	4,800
	To Treasury stock (1,600*71)		113,600

The balance in paid-in capital a/c is as follows -

Paid-in Capital A/C
Nov-23	To Treasury stock a/c	4,800	Sep-22	By Cash a/c	30,400
Dec-31	To Balance c/d	25,600
	Total	30,400		Total	30,400

There are many reasons for a company to buy back share. Some are -

1. One of the main reasons for the company to buy back shares is stop of any take over.
2. The company has excess cash and plans to buy back shares.
3. Stocks may be undervalued