Star Corporation purchased from its stockholders 5,000 shares of its own previously issued stock for $250,000. It later resold 2,000 shares for $53 per share, then 2,000 more shares for $48 per share, and finally 1,000 shares for $43 per share.

In 2017, Star Corporation had the following treasury stock transactions.

Mar. 1 Purchased 5,000 shares at $8 per share.

June 1 Sold 1,000 shares at $12 per share.

Sept. 1 Sold 2,000 shares at $10 per share.

Dec. 1 Sold 1,000 shares at $7 per share.

Instructions

As you know that treasury stocks play a significant role in lowering the public ownership. Considering your understanding, journalize the treasury stock transactions and find the total amount of Paid-in Capital from Treasury Stock at December 31, 2017. What are some other circumstances under which company can go for the purchase of treasury stock? Provide your valuable opinion.

Step-by-step explanation:

The objective here is to create a journal entry for the Star corporation treasure stock transaction, then find the total amount of Paid-in Capital from Treasury Stock at December 31, 2017.

Journal Entries:

Date Description $ $

Mar 1 Treasury Stock 40,000

Cash 40,000

June 1 Cash (1,000*12) 12,000

Treasury Stock (1,000*8) 8,000

Paid in Capital (12-8) * 1,000 4,000

Sept 1 Cash (1,000*10) 10,000

Treasury Stock (1,000*8) 8,000

Paid in Capital (12-10) * 1,000 2,000

Dec 1 Cash (1,000*7) 7,000

Paid in Capital (8-7) * 1,000 1,000

Treasury Stock (1,000*8) 8,000

The Beginning Balance:

Treasury Stock Price = 250,000 / 5,000

= $50

Paid in Capital = [2,000 * (53-50) + 2,000 * (48-50) + 1,000 * (43-50) ]

= [ (2,000*3) + (2,000*-2) + (1,000*-7) ]

= 6,000 - 4,000 - 7,000

= - 5,000

During the year transactions = 4,000+2,000-1,000

= $5,000

The total amount paid in Capital = Beginning Balance + During the year transactions

= - 5,000 + 5,000

= 0

Some other circumstances under which company can go for the purchase of treasury stock includes:

A situation where by they resells the stock in the bid to increase funds for future investment.

The company can go for the purchase of treasury stock in order to empower the financial ratios and have full control interest in the company

It can also aid as a means of increasing the price of the share when it is underpriced in the market.