Answer:
Transaction 1
Assets - Decrease by $225,000
Cash was used to purchase the shares at = 5,000 * 45 = $225,000
Liabilities - No effect
Stockholders' equity - Decrease by $225,000
Treasury shares reduce the amount held by stockholders.
Paid In Capital - No effect
Retained Earnings - No Effect
Net Income - No Effect
Transaction 2
Assets - Increase by $98,000
The shares were sold for at = 2,000 * 49 = $98,000
Liabilities - No effect
Stockholders' equity - Increase by $90,000
= 2,000 * 45 = $90,000
Treasury shares sold increases the amount held by stockholders. As we are using the Cost method, this will be recorded at cost.
Paid In Capital - Increase by $8,000
Using the cost method, when stock is sold for more than it was bought, record the cost in the stock account and credit the remainder to this account.
Retained Earnings - No Effect
Net Income - No Effect
Transaction 3
Assets - Increase by $20,000
The shares were sold for at = 500 * 40 = $20,000
Liabilities - No effect
Stockholders' equity - Increase by $22,500
= 500 * 45 = $22,500
Treasury shares sold increases the amount held by stockholders. As we are using the Cost method, this will be recorded at cost.
Paid In Capital - Decrease by $2,500
Using the cost method, when stock is sold for less than it was bought, record the cost in the stock account and debit the remainder to this account to indicate a decrease.
Retained Earnings - No Effect
Net Income - No Effect
