Question

Treasury Stock Transactions

Mystic Lake Inc. bottles and distributes spring water. On July 9 of the current year, Mystic Lake reacquired 6,300 shares of its common stock at $61 per share. On September 22, Mystic Lake sold 4,400 of the reacquired shares at $66 per share. The remaining 1,900 shares were sold at $57 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

• Requirement [a]

Date	Account title	Debit	Credit
09-Jul	Treasury Stock	$384,300
	Cash		$384,300
	(reacquired)
22-Sep	Cash	$290,400
	Treasury Stock		$268,400
	Paid in Capital from Treasury Stock		$22,000
	(re issued)
23-Nov	Cash	$108,300
	Paid in Capital from Treasury Stock	$7,600
	Treasury Stock		$115,900
	(re issued)

• [b]

Balance in Paid in Capital from Treasury Stock
= $ 22000 – 7600
= $ 14400

• [c]

Reasons for purchase of Treasury Stock can be:
>to decrease no of outstanding shares for dividend.
>to inflate the figure of Earnings per share.
>to use excess cash balance.