Question

Biscayne Bay Water Inc. bottles and distributes spring water. On May 14 of the current year, Biscayne Bay Water Inc. reacquired 24,200 shares of its common stock

The stock outstanding when a corporation has issued only one class of stock.

at $68 per share. On September 6, Biscayne Bay Water Inc. sold 12,500 of the reacquired shares at $74 per share. The remaining 11,700 shares were sold at $65 per share on November 30.

Required:

A.	Journalize the transactions of May 14, September 6, and November 30. Refer to the Chart of Accounts for exact wording of account titles.
B.	What is the balance in Paid-In Capital Capital contributed to a corporation by the stockholders and others. from Sale of Treasury Stock on December 31 of the current year?
C.	Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet?
D.	For what reasons might Biscayne Bay Water Inc. have purchased the treasury stock?

Answer 1

A) Journal Entry

Particulars	Amount	Amount
1) May, 14
Treasury Stock (24200*68)	1645600
Cash		1645600
2) September,6
Cash (12500*74)	925000
Treasury Stock(12500*68)		850000
Paid in Capital from Treasury Stock(12500*6)		75000
3) November,30
Cash(11700*65)	760500
Paid in Capital from Treasury Stock(11700*3)	35100
Treasury Stock(11700*68)		795600

B)

Balance in Paid In Capital

September, 16 - Paid in Capital from Treasury Stock	75000
November, 30 - Paid in Capital from Treasury Stock	(35100)
Balance as on 31st December	39900

C) Paid in Capital from Treasury Stock will be shown under Stockholder's Equity in Balance sheet as follows:

Balance Sheet

Stockholder's Equity
Capital Stock
Additional paid in capital
- Paid in capital in excess of Par - Common
- Paid in Capital from Treasury Stock

D) Reasons

- Biscayne Bay Water Inc must have purchased this shares so as to sell them at higher prices thus generating cash in the process

- It could have purchased so as to improve its financial ratio sucha s EPS, P/E ratio by reducing no of common stock outstanding to outsiders