Question

Treasury Stock Transactions

Mystic Lake Inc. bottles and distributes spring water. On July 9 of the current year, Mystic Lake reacquired 6,700 shares of its common stock at $76 per share. On September 22, Mystic Lake sold 4,700 of the reacquired shares at $85 per share. The remaining 2,000 shares were sold at $73 per share on November 23.

a. Journalize the transactions of July 9, September 22, and November 23. If an amount box does not require an entry, leave it blank.

July 9
Sept. 22
Nov. 23

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 Mystic Lake Inc. have purchased the treasury stock?

Answer 1

Date	journal	debit	credit
July 9	treasury stock	509200
	To cash		509200
Sep. 22	cash	399500
	To treasury stock		357200
	To paid in capital from sale of treasury stock		42300
Nov. 23	cash	146000
	Paid in capital from sale of treasury stock	6000
	To treasury stock		152000

B) $36300 cr.

= $42300 - $6000 = $36300

C) Reasons :

1) the market value of the stock may be very low

2)they may do it as part of a reorganization that contemplates the company "going private" from some particular stock exchange market.

3) they may do it with the purpose of employ stock option plan i.e. buying back and issuing them to their employees.

For any query please comment and

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