Exercise 11-8  Treasury Stock Transactions

The Stockholders’ Equity category of Little Joe’s balance sheet on January 1, 2014, appeared as follows:

 

Common stock, $5 par, 40,000 shares issued

and outstanding	$200,000
Additional paid-in capital	90,000
Retained earnings	100,000
Total  stockholders’ equity	$390,000

The following transactions occurred during 2014:

a.      Reacquired 5,000 shares of common stock at $20 per share on February 1.

b.      Reacquired 1,200 shares of common stock at $13 per share on March 1.

Required

1.        Record the entries in journal form.

2.        Assume that the treasury stock was reissued on October 1 at $12 per share. Did the company benefit from the treasury stock reissuance? Where is the ‘‘gain’’ or ‘‘loss’’ presented on the fi- nancial statements?

3.        What effect did the two transactions to purchase treasury stock and the later reissuance of that stock have on the Stockholders’ Equity section of the balance sheet?