10-corporations.ppt

* On May 8th, Whitt Incorporated purchased two thousand of its own shares in the market for eight thousand dollars. The entry on May 8th includes a debit to Treasury Stock and a credit to Cash for eight thousand dollars, which is the amount of the purchase. The Treasury Stock would be reported on the balance sheet in the equity section as a reduction from total equity. * On June 30th, Whitt sold one hundred shares of the treasury stock for four dollars per share. This entry would include a debit to Cash and a credit to Treasury Stock for four hundred dollars. This was a nice clean entry because we sold the treasury stock for its original cost of four dollars per share. Let’s see what happens when the selling price of the treasury stock is different than the cost. * On July 19th, Whitt sold five hundred shares of the treasury stock for eight dollars per share. Remember that the original cost of the treasury stock was four dollars per share. This entry would include a debit to Cash for four thousand dollars. The credit Treasury Stock is for two thousand dollars. This is the original cost of four dollars per share times the five hundred shares sold. The difference between the selling price and the cost of the treasury stock is credited to Contributed Capital. In this example, that amount is two thousand dollars. Now, let’s see what happens if we sell treasury stock for less than its original cost. * On August 27th, Whitt sold four hundred shares of the treasury stock for one dollar and fifty cents per share. Remember that the original cost of the treasury stock was four dollars per share. This entry would include a debit to Cash for six hundred dollars. The credit to Treasury Stock is for one thousand, six hundred dollars. This is the original cost of four dollars per share times the four hundred shares sold. The difference between the selling price and the cost of the treasury stock is debited to Contributed Capital. In this example, that amount i