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9 April, 03:53

On December 31, 20X4, Pack Corp.'s Board of Directors canceled 50,000 shares of $2.50 par value common stock held in treasury at an average cost of $13 per share. Before recording the cancellation of the treasury stock, Pack had the following balances in its stockholders' equity accounts:

Common stock

$540,000

Additional paid-in capital

750,000

Retained earnings

900,000

Treasury stock, at cost

650,000

In its balance sheet at December 31, 20X4, Pack should report common stock outstanding of

a) $0

b) $250,000

c) $415,000

d) $540,000

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Answers (2)
  1. 9 April, 03:59
    0
    C) $415,000

    Explanation:

    The journal entry to record the repurchase of treasury stocks:

    Dr Treasury stock 125,000

    Dr Additional paid-in capital in excess of par value 525,000

    Cr Cash 650,000

    After this transaction, the account balances should be:

    Common stock $540,000 - $125,000 = $415,000

    Additional paid-in capital = $750,000 - $525,000 = $225,000

    Retained earnings = $900,000

    Treasury stock = $650,000 + $125,000 = $775,000

    After the stocks are cancelled, only treasury stock will be affected, since it will be decrease to $650,000.

    Treasury stock is a contra equity account but is reported in the balance sheet as an asset. It decreases the value of common stock.
  2. 9 April, 04:09
    0
    c) $415,000

    Explanation:

    Treasury share are company's own share which have been bought back by the company from the market. These share are held by the company and it can be either reissued or canceled by the company.

    The cancelled treasury stcoks are deducted from the common stcok value by the par value of each share.

    Common stock at December 31, 20X4 = $540,000 - (50,000 x $2.5) = $540,000 - $125,000 = $415,000
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