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Bonita Industries acquired 21600 shares of its own common stock at $22 per share on February 5, 2020, and sold 10800 of these shares at $29 per share on August 9, 2021. The fair value of Bonita's common stock was $26 per share at December 31, 2020, and $27 per share at December 31, 2021. The cost method is used to record treasury stock transactions. What account(s) should Bonita credit in 2021 to record the sale of 10800 shares

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Answer: Treasury Stock Account and Paid-in Capital from Treasury Stock Account.

Explanation:

The two accounts to be credited in 2021 would be the Treasury Stock Account for $237,600 and the Additional Paid-in Capital from Treasury Stock for $75,600.

As a result of the cost method being used, the Treasury Stock account must be recorded at cost.

The 10,800 shares were purchased at $22.

= 10,800 * 22

= $237,600.

So $237,600 has to be credited from the Treasury Account.

However the amount realised was more as the stock was sold at $29. The difference therefore would go into the Additional Paid-in capital from Treasury Stock Account.

= 10,800 * ( 29 - 22)

= $75,600.

= 75,600 + 237,600

= $313,200

This $313,200 will be debited to the Cash Account.

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