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C P14 6 Presentation

The document outlines the accounting treatment for treasury stock transactions of Washington Company during 2021, including purchases, dividends declared and paid, and resale of treasury shares. It provides journal entries for each transaction and concludes with the preparation of the stockholders' equity section of the balance sheet as of December 31, 2026, reflecting the impact of these transactions. The final stockholders' equity shows common stock, retained earnings, and treasury stock with a total equity of $760,100.

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252 views14 pages

C P14 6 Presentation

The document outlines the accounting treatment for treasury stock transactions of Washington Company during 2021, including purchases, dividends declared and paid, and resale of treasury shares. It provides journal entries for each transaction and concludes with the preparation of the stockholders' equity section of the balance sheet as of December 31, 2026, reflecting the impact of these transactions. The final stockholders' equity shows common stock, retained earnings, and treasury stock with a total equity of $760,100.

Uploaded by

peedalidle
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 14

P14-6.

- Treasury Stock—Cost Method—Equity Section Preparation

Washington Company has the following stockholders' equity accounts at


December 31, 2025.
Common Stock ($100 par value, authorized 8,000 shares) $480,000
Retained Earnings 294,000

Instructions

(a) Prepare entries in journal form to record the following transactions,


which took place during 2021.

1. 280 shares of outstanding stock were purchased at $97 per share.


(These are to be accounted for using the cost method.)
2. A $20 per share cash dividend was declared.
3. The dividend declared in (2) above was paid.
4. The treasury shares purchased in (1) above were resold at $102
per share.
5. 500 shares of outstanding stock were purchased at $105 per share
6. 350 of the shares purchased in (5) above were resold at $96 per
share.

(b) Prepare the stockholders' equity section of Washington Company's


balance sheet after giving effect to these transactions, assuming that the
net income for 2026 was $94,000. State law requires restriction of
retained earnings for the amount of treasury stock.
PROBLEM 14-6

(a) -1-
Treasury Stock (280 X $97) ........................................ 27,160
Cash ...................................................................... 27,160

Treasury Stock (Cost method)


Beg. Bal. 0

280 x $97

$27,160
PROBLEM 14-6

(a) -1-
Treasury Stock (280 X $97) ........................................ 27,160
Cash ...................................................................... 27,160

-2-
Retained Earnings ...................................................... 90,400
Dividends Payable [(4,800 – 280) X $20] ............. 90,400

-3-
PROBLEM 14-6

(a) -1-
Treasury Stock (280 X $97) ........................................ 27,160
Cash ...................................................................... 27,160

-2-
Retained Earnings ...................................................... 90,400
Dividends Payable [4,800 shares – 280) X $20].. 90,400
($480,000 /$100 par value – 280 treasury shares)
-3-
Dividends Payable ...................................................... 90,400
Cash...................................................................... 90,400
PROBLEM 14-6

(a) -1-
Treasury Stock (280 X $97) ........................................ 27,160
Cash ...................................................................... 27,160

-2-
Retained Earnings ...................................................... 90,400
Dividends Payable [(4,800 issued – 280) X $20]. 90,400

-3-
Dividends Payable ...................................................... 90,400
Cash...................................................................... 90,400

-4-
Cash (280 X $102) ........................................................ 28,560
Treasury Stock ..................................................... 27,160
Paid-in Capital from Treasury Stock (280 X $5*) .. 1,400

*$102 - $97 = $5

Treasury Stock (Cost)


Beg. Bal. 0

280 x $97

$27,160

280 x $97

$27, 160
PROBLEM 14-6

(a) -1-
Treasury Stock (280 X $97) ........................................ 27,160
Cash ...................................................................... 27,160

-2-
Retained Earnings ...................................................... 90,400
Dividends Payable [($4,800 – $280) X $20] ......... 90,400

-3-
Dividends Payable ...................................................... 90,400
Cash...................................................................... 90,400

-4-
Cash (280 X $102) ........................................................ 28,560
Treasury Stock (cost) .......................................... 27,160
Paid-in Capital from Treasury Stock (280 X $5*) .. 1,400
-5-

Treasury Stock (500 X $105) ....................................... 52,500


Cash...................................................................... 52,500

Treasury Stock (Cost)


Beg. Bal. 0

280 x $97

$27,160

280 x $97

$27, 160

500 x 105

$52,500
PROBLEM 14-6

-5-

Treasury Stock (500 X $105) ....................................... 52,500


Cash...................................................................... 52,500
Treasury Stock (Cost)
Beg. Bal. 0

280 x $97 = $27,160

280 x $97 =$27, 160

(5) 500 x 105

$52,500

350 x 105 (6)

$36, 750

End. Bal.
$15,750

Paid-in capital from Treasury Stock & Retained Earnings:

Deduction for difference in cost of treasury stock ($105) and sales price ($96) = $9 per
share , 350 shares issued x $9 = $3,150

Now, deduct $3,150 from Paid-in capital from Treasury Stock followed by Retained
Earnings if the Paid in capital from Treasury Stock insufficient.

Paid-capital from Treasury Stock Retained Earnings

280 x $5

$1,400 (4)

(6) $1,400 (6) 1,750*

* $3,150 – $1,400 = $1,750


PROBLEM 14-6 (Continued)

-5-

Treasury Stock (500 X $105) ....................................... 52,500


Cash...................................................................... 52,500

-6-
Cash (350 X $96) .......................................................... 33,600
Paid-in Capital from Treasury Stock .......................... 1,400
Retained Earnings ....................................................... 1,750
Treasury Stock (350 X $105) ............................... 36,750
PROBLEM 14-6 (Continued)

(b) WASHINGTON COMPANY


Stockholders’ Equity
December 31, 2026

Common stock, $100 par value, authorized


8,000 shares; issued 4,800 shares,
4,650 shares outstanding ................................ $480,000
PROBLEM 14-6 (Continued)

(b) WASHINGTON COMPANY


Stockholders’ Equity
December 31, 2026

Common stock, $100 par value, authorized


8,000 shares; issued 4,800 shares,
4,650 shares outstanding ................................ $480,000
Retained earnings (restricted in the
amount of $15,750* by the acquisition of
treasury stock) ................................................. 295,850**
Total paid-in capital and
retained earnings ..................................... 775,850
*($52,500 – $36,750)

Treasury Stock (Cost)


Beg. Bal. 0

280 x $97 = $27,160

280 x $97 =$27, 160

(5) 500 x 105

$52,500

350 x 105 (6)

$36, 750

End. Bal.
$15,750
PROBLEM 14-6 (Continued)

(b) WASHINGTON COMPANY


Stockholders’ Equity
December 31, 2026

Common stock, $100 par value, authorized


8,000 shares; issued 4,800 shares,
4,650 shares outstanding ................................ $480,000
Retained earnings (restricted in the
amount of $15,750* by the acquisition of
treasury stock) ................................................. 295,850**
Total paid-in capital and
retained earnings ..................................... 775,850
*($52,500 – $36,750)

Retained Earnings:
Bal. 12/31/2025 $294,000
Net Income (2026) 94,000
Reissue Treasury Stock below cost (1,750)
Dividends (2026) (90,400)
Bal. 12/31/2026 $295,850
PROBLEM 14-6 (Continued)

(b) WASHINGTON COMPANY


Stockholders’ Equity
December 31, 2026

Common stock, $100 par value, authorized


8,000 shares; issued 4,800 shares,
4,650 shares outstanding ................................ $480,000
Retained earnings (restricted in the
amount of $15,750* by the acquisition of
treasury stock) ................................................. 295,850**
Total paid-in capital and
retained earnings ..................................... 775,850
Less: Treasury stock (150 shares) .................... 15,750
Total stockholders’ equity ........................... $760,100
*($52,500 – $36,750)
**($294,000 – $90,400 – $1,750 + $94,000)

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