In 2005, Stuart Corporation began operations, issuing 100,000 shares of $1 par value common stock for $25 per share. Since that time, the company has been very profitable. The shareholders’ equity section as of December 31, 2014, follows:
Common stock .............. $ 100,000
Additional paid-in capital (C/S) ........ 2,400,000
Retained earnings ............. 4,500,000
Total shareholders’ equity ........... $7,000,000
In 2015, the company entered into a program of buying back some of the outstanding shares. During the year, the company purchased 30,000 outstanding shares at $95 per share.
a. Prepare the journal entry to record the purchase of the treasury shares.
b. Assuming that net income of $350,000 was earned and dividends of $50,000 were declared during the year, prepare the shareholders’ equity section of the balance sheet as of the end of 2015.
c. Explain how the dollar value of the treasury stock account can be larger than the dollar amount of contributed capital.

  • CreatedAugust 19, 2014
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