Question

Lava Lake Inc. bottles and distributes spring water. On February 11 of the current year, Lava Lake reacquired 40,300 shares of its common stock at $42 per share. On April 30, Lava Lake Inc. sold 32,400 of the reacquired shares at $49 per share. On August 22, Lava Lake Inc. sold 7,900 shares at $41 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

2. Balance in Paid in Capital = $226800 - $7900 = $218900

3.The Reason behind Stock Repurchase

a. The Company may have excess cash Available. So the company might want to use the cash efficiently by share repurchase.

b. If the company thinks that the share price is undervalued in the market and thought that the share repurchase might help to regain its price

c. To increase financial ratios and maintain company's financial health