Answer:
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.
