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On 9/1/14, Valdez Company reacquired 20,000 shares of its own $10 par value common stock for...

On 9/1/14, Valdez Company reacquired 20,000 shares of its own $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. Six months later, Valdez sells 15,000 shares for $13 per share. What is the journal entry to record the reacquisition of the stock?

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Answer #1

Under such a situation, when a company reacquire its own shares, they are known as treasury stock. The cost method to account for treasury stock means that the full value paid for the purchase will be used.
Amount paid to reacquire shares = Shares reacquired * Purchase price = 20,000 shares * $15 per share = $300,000

Journal entry to record this:

Date General Journal Debit Credit
9/1/14 Treasury Stock $300,000
Cash $300,000
( To record the reacquisition of 20,000 shares @ $15 per share )
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