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3 March, 14:47

A company issued 4,000 shares of $5 par common stock for $30 per share. The company purchased 1,200 shares as treasury stock at $32 per share. Later, the company reissued 400 shares of the treasury stock at $34 per share. Which of the following is true?

a. The Treasury Stock account should have a balance of $25,600.

b. The Treasury Stock account should have a balance of $24,800.

c. The company has a gain of $800 that should appear on the income statement.

d. The company has a gain of $1,600 that should appear on the income statement.

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  1. 3 March, 15:13
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    a. The Treasury Stock account should have a balance of $25,600.

    Explanation:

    The computation is shown below:

    = Number of treasury stock shares * price per share - reissued shares * price per share

    = 1,200 shares * $32 - 400 shares * $32

    = $38,400 - $12,800

    = $25,600

    All other information which is given is not relevant. Hence, ignored it

    The repurchase shares journal entry is shown below:

    Treasury stock A/c Dr $38,400

    To Cash A/c $38,400

    (Being treasury stock is repurchased)

    And. the reissue of repurchase shares journal entry is shown below:

    Cash A/c Dr $13,800

    To Treasury Stock A/c $12,800

    To Additional Paid in Capital A/c $800

    (Being the reissued shares are recorded)

    The computation is shown below:

    For cash account:

    = 400 shares * $34 per share

    = $13,600

    For Treasury Stock Account

    = 400 shares * $32 per share

    = $12,800

    And, for Additional Paid in Capital Account

    = $13,600 - $12,800

    = $800
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