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17 April, 13:48

Five years ago, Dunn Trading Co. issued 2,500 ordinary shares. The shares have a P2 par value and sold at that time for P12 per share. On January 1, 2012, Dunn Trading Co. Purchased 1,000 of these shares for P24 per share. On September 30, 2012, Dunn reissued 500 of the shares for P28 per share. The journal entry to record the reissuance will include

A. A credit to cash P14,000.

B. A debit to Treasury Shares P12,000.

C. A credit to Treasury Shares P14,000.

D. A credit to Share Premium-Treasury P2,000.

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  1. 17 April, 14:14
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    D. A credit to Share Premium-Treasury P2,000

    Explanation:

    Stock Repurchase is a method to reduce the outstanding shares and equity value of the company in the market, company pays the stockholder and purchases own shares, which can be reissued or cancelled later on.

    Common stock value = 2,500 shares x P2 per share = P5,000

    Additional Paid-in-Capital = 2,500 million shares x (P12 - P2) per share = P25,000

    January 1, 2012

    Repurchase Value = 1,000 x P24 = P24,000

    Stock was repurchased and recorded as follow

    Dr. Treasury Shares P24,000

    Cr. Cash P24,000

    September 30, 2012

    Shares are reissued at this date

    Cash received = 500 x P28 = P1,4000

    Cost of reissued shares = 500 x P24 = P12,000

    Difference between the re-issuance value and cost of reissued shares will be added to the Add-in-capital from treasury stock account.

    Journal Entry for Re-issuance

    Dr. Cash $14,000

    Cr. Share Premium treasury stock $2,000

    Cr. Treasury stock $12,000
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