Question

On March 1, 2009, the Miranda Company purchased 2,000 shares of its common stock for $25...

On March 1, 2009, the Miranda Company purchased 2,000 shares of its common stock for $25 per share for the treasury. On July 1, 2009, 1,000 of the treasury shares were sold for $30 per share.  On October 1, 2009, 1,000 of the treasury shares were sold at $15 per share.

On January 1, 2009, Miranda’s balance in Retained Earnings was $100,000. During the year, the company had net income of $20,000 and paid dividends of $5,000.

44. Refer to question #42 (Which of the following is true regarding the sale of Treasury stock on July 1?). By what amount did Total Equity change, if at all? ( If the account or amount did not change, state your answer as "$0")

45. Which of the following is true regarding the sale of treasury stock on October 1?

a. Treasury Stock decreased and Total Equity decreased

b. Treasury Stock decreased and Total Equity increased

c.Treasury Stock increased and Total Equity decreased

d. Treasury Stock increased and Total Equity increased

e. None of the above

46. Refer to question #45. By what amount did Treasury Stock Change, if at all? ( If the account or amount did not change, state your answer as "$0")

47. Refer to question #45. By what amount did Total Equity change, if at all? ( If the account or amount did not change, state your answer as "$0")

48. What is the balance in Retained earnings at the end of the year?

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Homework Answers

Answer #1

Solution 44:

Total change in equity due to sale of treasury stock on July 1 = 1000*$30 = $30,000 increase

Solution 45:

On sale of tresury stock on Oct 1. "Treasury Stock decreased and Total Equity increased"

Hence option b is correct.

Solution 46:

Amount by which treasury stock change on sale of tresury stock on October 1 = 1000 * $25 = $25,000 decrease

Solution 47:

Amount by which total equity change at all on sale of treasury stock on Oct 1 = 1000 * $15 = $15,000 increase

Solution 48:

Balance in retained earning at the end of year = Beginning retained earnings + Net Income - Dividend paid - Loss on sale of treasury stock on Oct 1

= $100,000 + $20,000 - $5,000 - (1000 * $5)

= $110,000

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