Bargain Central Furniture, Inc., completed the following treasury stock transactions:

a. purchased 1,300 shares of the company's $1 par common stock as treasury stock, paying cash or $6 per share.

b. sold 700 shares of the treasury stock for cash of $9 per share.

Requirements:

R1. Journalize these transactions. Explanations are not required.

R2. Show how Bargain Central will report treasury stock on its December 31, 2010 balance sheet after completing the two transactions. In reporting the treasury stock, report only on the Treasury Stock account. You may ignore all other accounts.

Bargain Central Furniture, Inc.

R1) Journal entries:

a) Debit Treasury Stock with $1,300

Debit Additional Paid-in Capital with $6,500

Credit Cash Account with $7,800

To record purchase of 1,300 shares of common stock, $1 par at $6 per share.

b) Debit Cash Account with $6,300

Credit Treasury Stock with $700

Credit Additional Paid-in Capital with $5,600

To record resale of 700 shares for $9 per share.

R2) Bargain Central Furniture, Inc.

Balance Sheet as at December 31, 2010:

Treasury Stock $600 ($1,300 - $700)

Explanation:

Treasury Stock is a contra account to the Common Stock. It represents the shares of common stock repurchased. Two methods are prevalent in reporting transactions in treasury stock. They are the the cost method, which reports all treasury stock transactions in the Treasury Stock account.

The other method is the par value method. This method reports only the par value transactions of treasury stock in the Treasury Stock account. The above or below par value aspects of each transaction is then taken to the Additional Paid-in Capital account.