Question

On January 1, Vermont Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, Vermont purchased 3,750 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1.
The journal entry to record the purchase of the treasury shares on February 1, would include a______.
A. debit to a loss account for $112,500
B. credit to Treasury Stock for $90,000
C. credit to a gain account for $112,500

Answer 1

Answer:

Journal entry to report the purchase of the treasury shares on February 1, would include a debit to treasury stock for $90,000.

Explanation:

The journal entry to record the purchase of treasury stock is as:

February 1  Treasury Stock A/c.......................Dr    $90,000

                              Cash A/c...................................Cr   $90,000

As the stock is coming into the business so any increase in asset is debited whereas it is purchased against cash so cash is decreasing and any decrease in asset is credited. Therefore, cash account is credited.

Working Note:

Amount = Shares × Rate per share

= 3,750 × $24

= $90,000

Note: The correct option is missing so I stated the correct answer in the answer part.