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California Surf Clothing Company issues 1,000 shares of $1 par value common stock at $31 per share. Later in the year, the company decides to purchase 100 shares at a cost of $34 per share.Record the transaction if California Surf resells the 100 shares of treasury stock at $36 per share. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Question

California Surf Clothing Company issues 1,000 shares of 1parvaluecommonstockat1 par value common stock at 31 per share. Later in the year, the company decides to purchase 100 shares at a cost of 34pershare.RecordthetransactionifCaliforniaSurfresellsthe100sharesoftreasurystockat34 per share.Record the transaction if California Surf resells the 100 shares of treasury stock at 36 per share. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

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Solution

The transactions would be recorded in the following way:

  1. When the company issues 1,000 shares of 1parvaluecommonstockat1 par value common stock at 31 per share:

    Debit: Cash (1,000 shares * 31)=31) = 31,000 Credit: Common Stock (1,000 shares * 1)=1) = 1,000 Credit: Paid-in Capital in Excess of Par Value (1,000 shares * (31−31 - 1)) = $30,000

  2. When the company purchases 100 shares at a cost of $34 per share:

    Debit: Treasury Stock (100 shares * 34)=34) = 3,400 Credit: Cash (100 shares * 34)=34) = 3,400

  3. When the company resells the 100 shares of treasury stock at $36 per share:

    Debit: Cash (100 shares * 36)=36) = 3,600 Credit: Treasury Stock (100 shares * 34)=34) = 3,400 Credit: Paid-in Capital from Treasury Stock (100 shares * (36−36 - 34)) = $200

Please note that the "Paid-in Capital from Treasury Stock" account is used to record the gain from selling the treasury stock above its cost. If the treasury stock was sold below its cost, the difference would be debited from the "Paid-in Capital from Treasury Stock" account (if there is a balance), or else from Retained Earnings.

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