The Ray Holt Corporation has retained you as a consultant on accounting policies and procedures. During 2007 the company engaged in a number of treasury stock transactions, having foreseen an opportunity to report its treasury stock as an asset, and to recognize a profit in trading its own stock. The transactions were as follows:
1. Reacquired 100 shares of its $10 par common stock at $20 per share. The shares had originally been issued at $23 per share.
2. Reacquired 150 shares of its $10 par common stock at $24 per share. The shares had originally been issued at $23 per share.
3. Reacquired 50 shares of its $100 par preferred stock at $140 per share. The shares had originally been issued at $170 per share.
4. Sold all common treasury shares held at $25 per share.
5. Reacquired 150 shares of its $100 par preferred stock at $130 per share. The shares had originally been issued at $170 per share.
6. Retired all preferred shares held in the treasury.

Required
1. Is the corporation correct in assuming that its treasury stock is an asset and that it can recognize a profit or gain from its treasury stock transactions? Explain.
2. Prepare an analysis of treasury stock accounting for Mr. Robert Richter, the controller. This analysis should contain proper journal entries for each of the treasury stock transactions occurring during 2007, prepared using the cost method discussed in the chapter.
3. Conclude the analysis by discussing how “gains” on treasury stock are reported and how treasury stock is reported on a corporation’s balance sheet.