Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 11-6

Approach: Follow the guidelines listed in Illustration 11-1.

Explanation:

1. Treasury Stock is debited for the cost of the treasury shares acquired.
2. Treasury Stock is debited for the cost of the treasury shares acquired.
3. Cash is debited for the selling price of the treasury shares sold ($11 per share). Treasury Stock is credited for the cost of the treasury shares sold ($15 per share). The excess of the cost over the selling price of the treasury shares is to be charged to Paid-in Capital from Treasury Stock to the extent that this account has a balance that came from previous transactions involving stock of the same class. In this scenario, there is no balance in this account so the entire excess ($4 per share) is charged to Retained Earnings.
4. Cash is debited for the selling price of the treasury shares sold ($14 per share). Treasury Stock is credited for the cost of the treasury shares sold ($13 per share). The excess of the selling price over the cost of the treasury shares ($1 per share) is to be credited to Paid-in Capital from Treasury Stock.
5. The acquisition of treasury stock is recorded first, and then the retirement of the shares is recorded. In the entry to record the retirement, the amounts recorded for the original issuance of the stock are removed ...