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Record entries, compute retained earnings

Johnston, Inc. engaged in the following transactions involving treasury stock:

Feb. 10 Purchased for cash 17,000 shares of treasurey stock at a price of $25 per share.
June 4 Reissued 6,000 shares of treasurey stock at a price of $33 per share.
Dec. 22 Reissued 4,000 shares of treasure stock at a price of $22 per share.

a. Prepare general journal entries to record these transactions.

b. Compute the amount of retained earnings that should be restricted because of the treasure stock still owned at December 31.

c. Does a restriction on retained earnings affect the dollar amount of retained earnings reported in the balance sheet? Explain briefly.

Solution Preview

Solution is provided in a separate Excel file attached along with explanatory conceptual notes as under.


1) Under the cost method, the cost of the shares acquired is debited to the account Treasury Stock. Profit from reissue credited to paid in capital-treasury stock.

Loss from sale of treasury stock could be debited to paid in capital from treasury stock if there is accumulated credit ...

Solution Summary

This solution provides assistance recording entries and computing the retained earnings.