Lava Lake Inc. bottles and distributes spring water. On February 11 of the current year, Lava Lake reacquired 39,500 shares of its common stock at $42 per share. On April 30, Lava Lake Inc. sold 30,100 of the reacquired shares at $51 per share. On August 22, Lava Lake Inc. sold 9,400 shares at $41 per share. Required: A. Journalize the transactions of February 11, April 30, and August 22. Refer to the Chart of Accounts for exact wording of account titles. B. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? C. For what reasons might Lava Lake have purchased the treasury stock?
SOLUTION
A. Journal entries-
Date | Accounts titles and Explanation | Debit ($) | Credit ($) |
February 11 | Treasury stock | 1,659,000 | |
Cash (39,500*$42) | 1,659,000 | ||
April 30 | Cash (30,100*$51) | 1,535,100 | |
Treasury stock (30,100*$42) | 1,264,200 | ||
Paid in capital from sale of Treasury stock | 270,900 | ||
August 22 | Cash (9,400*$41) | 385,400 | |
Paid in capital from sale of Treasury stock | 9,400 | ||
Treasury stock (9,400*$42) | 394,800 |
B. Balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year-
= $270,900 - $9,400 = $261,500
C. Reasons are-
1. For re-issuance to employees as a bonus according to stock repurchase agreements.
2. To provide shares for resale to employees.
3. To support market price of the stock.
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