E15-7 (L02) (Effect of Treasury Stock Transactions on Financials) Joe Dumars Company has outstanding 40,000 shares of $5 par common stock which had been issued at $30 per share. Joe Dumars then entered into the following transactions. 1. Purchased 5,000 treasury shares at $45 per share. 2. Resold 2,000 of the treasury shares at $49 per share. 3. Resold 500 of the treasury shares at $40 per share. Instructions Use the following code to indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method (I = Increase; D = Decrease; NE = No effect).

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Lucia Raymond

Business

9 December, 07:05

E15-7 (L02) (Effect of Treasury Stock Transactions on Financials) Joe Dumars Company has outstanding 40,000 shares of $5 par common stock which had been issued at $30 per share. Joe Dumars then entered into the following transactions. 1. Purchased 5,000 treasury shares at $45 per share. 2. Resold 2,000 of the treasury shares at $49 per share. 3. Resold 500 of the treasury shares at $40 per share. Instructions Use the following code to indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Joe Dumars Company uses the cost method (I = Increase; D = Decrease; NE = No effect).

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Essence Williamson · Answer 1

1) decrease of equity:

2) increase of equity

3) increase of equity

Explanation:

1) the treasury stock decrase the equity outstanding

5,000 shares x $45 = $225,000

2) when we sale the sales our equity increase:

2,000 x 49 = 98,000

cost 2,000 x 45 = 90,000

we reocgnize an additional paid-in treasury stock for 8,000

as we cannot recognize a gain from selling our own shares

3) 500 x 40 = 20,000

cost 500 x 45 = 22,500

we decrease the addtional paid-in for 2,500 as we sale at "loss"