3) A company may purchase treasury stock to increase net assets by buying high and selling low.
4) Which of the following is NOT a reason for which a company may purchase treasury stock?
A) to avoid a takeover by an outside party by increasing the number of outstanding shares that have
voting rights
B) to increase net assets by buying low and selling high
C) to support the company’s stock price
D) to reward valued employees with stock
5) Define treasury stock and provide two reasons why a corporation would purchase treasury stock.
6) Treasury stock is a contra equity account.
7) Treasury stock is recorded at cost, without reference to par value.
8) Treasury stock has voting rights and receives cash or stock dividends.
9) Treasury stock ________.
A) decreases the number of shares issued
B) increases the number of shares issued
C) increases the number of shares outstanding
D) decreases the number of shares outstanding
10) Treasury stock is ________.
A) a contra equity account
B) a contra asset account
C) a liability account
D) an asset account
11) Assume the following information for Western Sales, Inc.:
• Common Stock, $1.00 par, 232,000 shares issued, 185,000 shares outstanding
• Paid-In Capital in Excess of Par—Common: $1,690,000
• Retained Earnings: $2,460,000
• Treasury Stock: 47,000 shares purchased at $17 per share
If Western Sales purchases an additional 8000 shares of treasury stock at $20 per share, what number of
shares will be shown as issued and outstanding?
A) 185,000 issued; 185,000 outstanding
B) 224,000 issued; 185,000 outstanding
C) 232,000 issued; 177,000 outstanding
D) 232,000 issued; 185,000 outstanding
12) The journal entry for the purchase of treasury stock includes a credit to Cash.
13) The journal entry to record the purchase of treasury stock includes a debit to Treasury Stock –
Common for the shares purchased multiplied by the par or stated value of the stock.
14) The purchase of treasury stock ________.
A) decreases assets and stockholders’ equity
B) increases assets and stockholders’ equity
C) increases assets and decreases stockholders’ equity
D) decreases assets and increases stockholders’ equity
15) A corporation originally issued $13 par value common stock for $15 per share. Which of the following
is included in the entry to record the purchase of 300 shares of treasury stock for $11 per share?
A) Treasury Stock—Common is debited for $3300.
B) Treasury Stock—Common is credited for $45.
C) Retained Earnings is debited for $1650.
D) Treasury Stock—Common is debited for $1650.
16) Land Corporation reported the following:
Common Stock, $5 par, 211,000 shares authorized, 165,000 shares issued
$825,000
Paid in Capital in Excess of Par—Common
217,000
Retained Earnings
207,000
Total Stockholders’ Equity
$1,249,000
Which of the following is included in the entry to record the corporation’s purchase of 40,000 shares of its
common stock for $12.00 per share?
A) Treasury Stock—Common is debited for $480,000.
B) Paid-In Capital from Treasury Stock Transactions is credited for $135,000.
C) Retained Earnings is debited for $480,000.
D) Common Stock—$5 Par Value is credited for $200,000.
17) Rosiland, Inc. purchases 16,000 shares of its previously issued $2 par value common stock for $460 per
share. Which of the following is the correct journal entry to record this transaction?
A) Debit Common Stock—$2 Par Value $7,360,000, and credit Cash $7,360,000.
B) Debit Cash $7,328,000, and credit Paid-In Capital in Excess of Par—Common $7,328,000.
C) Debit Cash $7,328,000, and credit Treasury Stock—Common $7,328,000.
D) Debit Treasury Stock—Common $7,360,000, and credit Cash $7,360,000.
18) Jarrell, Inc. purchases 8,500 shares of the company‘s own $6 par common stock for $8 per share.
Journalize the transaction. Omit explanation.
19) If treasury stock is resold for more than cost, the difference is debited to the account Paid-In Capital
from Treasury Stock Transactions.
20) A sale of treasury stock at its cost increases assets and increases equity.
21) If treasury shares are sold for less than their cost, the difference is recorded as a loss.
22) The account Paid-In Capital from Treasury Stock Transactions has a credit balance of $2,000. The
corporation resells 450 shares of its treasury stock. These shares were acquired for $10 per share and sold
for $3 per share. The entry to record the sale of treasury stock includes a debit to Retained Earnings of
$3,150.
23) A corporation originally issued $7 par value common stock for $13 per share. It purchased the stock
for $17 per share. Which of the following is included in the entry to record the sale of 20 shares of
treasury stock for $18 per share?
A) Paid-In Capital from Treasury Stock Transactions is credited for $360.
B) Treasury Stock—Common is credited for $340.
C) Treasury Stock—Common is credited for $360.
D) Paid-In Capital from Treasury Stock Transactions is debited for $20.
24) Refer to the following information for Tolan Corporation:
• Common Stock, $1.00 par, 106,000 shares issued, 100,000 shares outstanding
• Paid-In Capital in Excess of Par—Common: $2,190,000
• Retained Earnings: $920,000
• Treasury Stock: 6000 shares purchased at $21 per share
If Tolan resold 2500 shares of treasury stock for $22.50 per share, which of the following statements
would be true?
A) The Treasury Stock account would decrease by $26,250.
B) The Paid-In Capital in Excess of Par—Common account would increase by $2500.
C) The Treasury Stock account would decrease by $52,500.
D) The Retained Earnings account would increase by $56,250.
25) On March 31, 2018, Water Front, Inc. shows the following data on its balance sheet:
Stockholders’ Equity
Common Stock, $1 Par, 1,180,000 shares authorized
240,000 shares issued, 230,000 shares outstanding
$240,000
Paid-In Capital in Excess of Par—Common
2,560,000
Retained Earnings
4,790,000
Treasury stock, 15,000 shares at $40
(600,000)
Total Stockholders’ Equity
$6,990,000
Assume that Water Front sells 1500 shares of treasury stock at $33 per share. What is total stockholders’
equity after this transaction?
A) $6,940,500
B) $7,039,500
C) $6,979,500
D) $7,000,500
26) Foodmart, Inc. completed the following treasury stock transactions in 2018:
Mar. 3 Purchased 1,800 shares of the company‘s $3 par value common stock as treasury stock, paying
cash of $10 per share.
Mar. 17 Sold 400 shares of the treasury stock for cash of $12 per share.
Mar. 25 Sold 600 shares of the treasury stock for cash of $7 per share.
(Assume the balance in Paid-In Capital from Treasury Stock Transactions on March 24 is $ 1,200.)
Journalize these transactions. Explanations are not required.
How will Foodmart, Inc. report treasury stock on its balance sheet as of December 31, 2018?
27) Marketsite, Inc. completed the following treasury stock transactions in 2018:
June. 3 Purchased 2,000 shares of the company‘s $5 par value common stock as
treasury stock, paying cash of $15 per share.
June 14 Sold 800 shares of the treasury stock for cash of $20 per share.
Journalize these transactions. Explanations are not required.
How will Marketsite, Inc. report treasury stock on its balance sheet as of December 31, 2018?
28) When a corporation retires its shares of treasury stock, the stock certificates are canceled.
29) Retired shares of treasury stock may later be reissued.