Question

   Treasury stock. In 2010, Mordica Co. issued 200,000 of its 500,000 authorized shares of $10...

   Treasury stock.

In 2010, Mordica Co. issued 200,000 of its 500,000 authorized shares of $10 par value common stock at $35 per share. In January 2011, Mordica repurchased 15,000 shares at $30 per share. Assume these are the only stock transactions the company has ever had.

Instructions

  1. What are the two methods of accounting for treasury stock?
  2. Prepare the journal entry to record the purchase of treasury stock by the cost method.
  3. 5,000 shares of treasury stock are reissued at $33 per share. Prepare the journal entry to record the reissuance by the cost method.

Homework Answers

Answer #1

a)There are two method of accounting for treasury stock:

i)cost method :under this method ,stock repurchased are held in treasury and resold as and when needed.

ii)par value method :Under this method ,It is assumed that shares repurchased will eventually be retired .

b)

Account title Debit credit
Treasury stock (15000*30) 450000
cash 450000

c)

Account title Debit credit
cash (5000*33) 165000
Treasury stock (5000*30) 150000
paid in capital in excess of cost -treasury stock 15000
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