In 2005, Stuart Corporation began operations, issuing 100,000 shares of $1 par value common stock for $25

Question:

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.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...