Question

Fechter Corporation had the following stockholders’ equity accounts on January 1, 2020: Common Stock ($5 par) $500,000, Paid-in Capital in Excess of Par—Common Stock $200,000, and Retained Earnings $100,000. In 2020, the company had the following treasury stock transactions.

Mar. 1 Purchased 5,000 shares at $8 per share.
June 1 Sold 1,000 shares at $12 per share.
Sept. 1 Sold 2,000 shares at $10 per share.
Dec. 1 Sold 1,000 shares at $7 per share.

Fechter Corporation uses the cost method of accounting for treasury stock. In 2020, the company reported net income of $30,000.

Required:
Journalize the treasury 2020, for net income.

Answer 1

Entries and their narrations are posted below

Step-by-step explanation:

We will record assets and expenses on the debit as they increase during the year and will record liabilities and capital on the credit side as they increase during the year or vice versa.

March 1 (Purchased 5,000 shares at $8 per share)

Dr treasury stock $40,000

(5000 x $8)

Cr Cash $40,000

June 1 (Sold 1,000 shares at $12 per share)

Dr Cash $12,000

(1000 x $12)

Cr Treasury stock $8,000

(1000 x $8)

Cr paid-in capital from treasury stock $4,000

Sept. 1 (Sold 2,000 shares at $10 per share)

Dr Cash $20,000

(2000 x $10)

Cr Treasury stock $16,000

(2000 x $8)

Cr paid-in capital from treasury stock $4,000

Dec. 1 Sold 1,000 shares at $7 per share.

Dr Cash $7,000

(1000 x $7)

Dr paid-in capital from treasury stock $1,000

Cr Treasury stock $8,000

(1000 x $8)