Question

Lava Lake Inc. bottles and distributes spring water. On February 11 of the current year, Lava Lake reacquired 180,000 shares of its common stock at $17 per share. On April 30, Lava Lake Inc. sold 90,000 of the reacquired shares at $20 per share. On August 22, Lava Lake Inc. sold 30,000 shares at $15 per share.

Required:

A.	Journalize the transactions of February 11, April 30, and August 22. Refer to the Chart of Accounts for exact wording of account titles.
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 Lava Lake have purchased the treasury stock?

Answer 1

Journal entry :

Date	account and explanation	debit	credit
Feb 11	Treasury stock (180000*17)	3060000
	Cash		3060000
	(To record purchase treasury stock)
Apr 30	Cash (90000*20)	1800000
	Treasury stock		1530000
	Paid in capital from sale of treasury stock		270000
	(To record sale of treasury stock)
Aug 22	Cash (30000*15)	450000
	Paid in capital from sale of treasury stock	60000
	Treasurys tock		510000
	(To record sale of treasury stock)

b) Balance in paid in capital from sale of treasury stock = 270000-60000 = 210000

c) Reason for purchase of treasury stock :

i) Increase earning per share

ii) Maintain favorable market of its stock