Question

On October 10, the stockholders’ equity of Sherman Systems appears as follows. Common stock–$10 par value, 77,000 shares authorized, issued, and outstanding $ 770,000 Paid-in capital in excess of par value, common stock 241,000 Retained earnings 904,000 Total stockholders’ equity $ 1,915,000 1. Prepare journal entries to record the following transactions for Sherman Systems. Purchased 5,500 shares of its own common stock at $30 per share on October 11. Sold 1,125 treasury shares on November 1 for $36 cash per share. Sold all remaining treasury shares on November 25 for $25 cash per share. 2. Prepare the stockholders' equity section after the October 11 treasury stock purchase.

Answer 1

Answer:

See the explanation below:

Explanation:

1. Prepare journal entries to record the following transactions for Sherman Systems

a. Purchased 5,500 shares of its own common stock at $30 per share on October 11.

Details                                                            Dr ($)               Cr ($)  

Treasury Stock (5,500 × 30)                         165,000

Cash                                                                                      165,000

To record the repurchase of own common stock                            

b. Sold 1,125 treasury shares on November 1 for $36 cash per share.

Details                                                            Dr ($)               Cr ($)    

Cash (1,125 × 36)                                            40,500

Treasury Stock (1,125 × 30)                                                  33,750

Paid-in Capital from Sale of Treasury Stock                        6,750

To record the sale of treasury stock.                                                      

c. Sold all remaining treasury shares on November 25 for $25 cash per share.

Details                                                                Dr ($)               Cr ($)    

Cash (4,375 × 25)                                                109,375

Paid-in Capital from Sale of Treasury Stock       6,750

Retained Earnings                                                15,125

Treasury Stock 99,000 (4,375 × 30)                                       131,250

To record the sale of the remaining treasury shares                              

Kindly note that there is a balance of $6,750 in the Treasury Stock Paid-in Capital account. Since it is utilized, the remaining deficit will show in Retained Earnings.

2. Prepare the stockholders' equity section after the October 11 treasury stock purchase.

Details                                                                                            $    

77,000 issued authorized common stock–$10 par value    770,000

Paid-in capital in excess of par value, common stock           241,000

Retained earnings                                                                    904,000

Treasury stock                                                                         (165,000)

Total stockholders’ equity                                                      1,750,000

Answer 2

1. Here, we are preparing the journal entries to record the following transactions for Sherman Systems

a. Date   Account titles and Explanation          Debit         Credit

               Treasury Stock (5,500 * 30)             $165,000

                    Cash                                                                   $165,000

               (To record the repurchase of own common stock)

b. Date   Account titles and Explanation          Debit         Credit

               Cash (1,125 × 36)                                $40,500

                      Treasury Stock (1,125 × 30)                            $33,750

                      Paid-in Capital from Sale of T. Stock            $6,750

              (To record the sale of treasury stock)

c. Date   Account titles and Explanation              Debit          Credit

                Cash (4,375 × 25)                                  $109,375

               Paid-in Capital from Sale of T. Stock   $6,750

               Retained Earnings                                 $15,125

                     Treasury Stock (4,375 × $30)                              $131,250

               (To record the sale of the remaining treasury shares)

 

2. Particulars                                                              Amount

issued authorized common stock (77,000*$10)      $770,000

Paid-in capital in excess of par value                       $241,000

Retained earnings                                                      $904,000

Treasury stock                                                            ($165,000)

Total stockholders’ equity                                         $1,750,000