Question

Scotti Company had the following transactions during the year 2018: On January 1, 2018, its first...

Scotti Company had the following transactions during the year 2018:

On January 1, 2018, its first year of business, Scotti Company issued 800,000 shares of $5 par value Common Stock for $18 per share.

On July 5, 2018, Scotti repurchased 200,000 shares at $20 per share.

On August 4, 2018, Scotti reissued 50,000 of its Treasury shares at $25 per share.

On September 15, 2018, Scotti reissued 50,000 of its Treasury shares at $23 per share.

On December 29, Scotti reissued the remaining 100,000 shares for $15.50 per share.

Scotti earned $420,000 of net income throughout the year and did not pay any dividends in its first year.  

How would Scotti report the September 15th sale of the treasury shares?

a) Increase Cash for $1,150,000, decrease Treasury Stock for $900,000 and increase Paid-in Capital Treasury Stock for $250,000.

b) None of these answers are correct.

c) Increase Cash for $1,150,000 and decrease Treasury Stock for $1,150,000.

d) Increase Cash $1,150,000, decrease Treasury Stock for $1,000,000 and increase Paid-in-Capital – Treasury Stock account for $150,000.

e) Increase Cash for $900,000, decrease Treasury Stock for $1,000,000 and increase Paid-in-Capital Treasury Stock for $100,000.

Business   Accounting   
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Answer #1

Ans:

On purchase of treasury stock: Treasury stock account increase and sales decrease.

At the time of sale of Treasury Stock: Difference in purchase and sale of stock will be adjusted with Paid in capital and retained earnings. Treasury stock will be credited with cost amount.

So on sale og Treasury stock on Sep 15: 50,000 stocks @$23 [cost $20]

Treasury Stock Decrease by 50,000*$20 = $1,000,000, Cash Increase by 50,000*$23 = $1,150,000, paid in capital increase by $150,000.

So correct answer is Option D.

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