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Preparing Journals and Balance Sheets

The stockholders' equity section of Seely Co.'s balance sheet at December 31, 2003, was as follows:

Common stock--$10 par (authorized 1,000,000 shares,issued and outstanding 600,000 shares) $6,000,000
Paid-in capital in excess of par 1,500,000
Retained earnings 3,250,000
$10,750,000

Instructions:
Prepare journal entries to reflect the following treasury stock transactions showing how each is accounted for under the cost method. (Show computations)

1. On January 4, 2004, having idle cash, Seely Co. repurchased 25,000 shares of its out-standing stock for $450,000.

2. On March 4, Seely sold 5,000 of these reacquired shares at $22 per share.

3. Show the proper disclosures in the stockholders' equity section of the balance sheet issued at the end of the first quarter, March 31, 2004. Assume net income of $100,000 during the first quarter.

4. On June 30, 2004 the firm sold 15,000 of the reacquired shares for $16 per share.

Solution Preview

1. On January 4, 2004, having idle cash, Seely Co. repurchased 25,000 shares of its outstanding stock for $450,000.

Jan. 4 Treasury Stock 450,000
Cash 450,000
(450,000/25,000 shares = $18.00)

2. On March 4, Seely sold 5,000 of these reacquired shares at $22 per share.

Mar. 4 Cash (22 x 5,000) ...

Solution Summary

This solution is comprised of a detailed explanation illustrating how to prepare journal entries to reflect treasury stock transactions showing how each is accounted for under the cost method. This is all completed in about 180 words.

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