Question

Treasury Stock Transactions

Mystic Lake Inc. bottles and distributes spring water. On July 9 of the current year, Mystic Lake reacquired 6,100 shares of its common stock at $88 per share. On September 22, Mystic Lake sold 4,300 of the reacquired shares at $95 per share. The remaining 1,800 shares were sold at $83 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

a
July 9	Treasury stock	536800		=6100*88
	Cash		536800
Sept. 22	Cash	408500		=4300*95
	Treasury stock		378400	=4300*88
	Paid in capital from sale of Treasury stock		30100
Nov. 23	Cash	149400		=1800*83
	Paid in capital from sale of Treasury stock	9000
	Treasury stock		158400	=1800*88
b
	Paid-In Capital from Sale of Treasury Stock	21100	Credit	=30100-9000

c

The possible reasons are:

To support the market price of the stock

To provide shares for resale to employees

For reissuance to employees as a bonus according to stock purchase agreements.