Pina Company had the following stockholdersâ equity as of January 1, 2020.
Common stock, $5 par value, 20,800 shares issued $104,000
Paid-in capital in excess of parâcommon stock 306,000
Retained earnings 320,000
Total stockholdersâ equity $730,000
During 2020, the following transactions occurred.
Feb. 1 Pina repurchased 2,040 shares of treasury stock at a price of $18 per share.
Mar. 1 750 shares of treasury stock repurchased above were reissued at $16 per share.
Mar. 18 500 shares of treasury stock repurchased above were reissued at $13 per share.
Apr. 22 550 shares of treasury stock repurchased above were reissued at $19 per share.
Required:
a. Prepare the journal entries to record the treasury stock transactions in 2020, assuming Skysong uses the cost method.

Journal Entry

1 Feb Debit Treasury Stock $36,720 Credit Bank $36,720

1 Mar Debit Bank $28,000 Debit Capital paid in excess-common stock $3,500 Credit Treasury stock $31,500

18 Mar Debit Bank $240,500 Debit Capital paid in excess-common stock $92,500 Credit Treasury stock $333,000

22 April Debit Bank $428,450 Credit Additional capital paid in excess - treasury stock $22,550 Credit Treasury stock $405,900

Explanation:

When using the cost method treasury stock is recorded at the cost of repurchase meaning it does not take into account the Par value and all the excess capital paid.

1 Feb Treasury stock = 2,040*$18 = $36,720

If Treasury stock is reissued for less than its cost then Bank increases with what is received treasury stock decreases by its original cost and the difference is set off against capital paid in excess-Treasury stock and if there is no previous capital paid in excess for treasury stock it is set off against capital paid in excess- common stock then retained earnings if capital paid in excess- common stock is also not available

1 Feb                      DEBIT                                              CREDIT

Treasury stock     $36720

cash                                                                                 $36720

1 Mar

Cash                       $28000

Paid in Capital Access      $3500                                                  

Treasury Stock                                                    $31500

1 Mar                                                

Cash                       $ 240 500

Paid in Capital Access   $92 500                                                  

Treasury stock                                                            $333000

1 Apr                                              

Cash                       $ 428450

Paid in Capital Access    $22 550

Treasury Stock                                                                    $405900

Explanation:

If the shares from treasury stock are reissued at a price that is higher than their cost, the difference is credited to additional paid-in capital If the shares from treasury stock are reissued at a price that is lower than their cost, the difference is debited to additional paid-in capital. lso at the issue of treasury we record that price and not the par value

b is the correct answer

answer makes less frequent trips to the bank and firms make less frequent price changes;