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When Oslo Ltd. was organized last year, they issued 100,000 no par value common shares for $ 1,200,000. Earlier this year, the corporation purchased 4,000 of these shares at $ 15 per share, to be held in the treasury, and three months later, sold 2,000 treasury shares at $ 19 per share. There were no other treasury share transactions.
-To record the sale of the 2,000 treasury shares, Oslo should credit
A) Treasury Shares for $ 38,000.
B) Treasury Shares for $ 20,000 and Contributed Surplus for $ 18,000.
C) Treasury Shares for $ 30,000 and Contributed Surplus for $ 8,000.
D) Treasury Shares for $ 30,000 and Retained Earnings for $ 8,000.

Question

Quizplus · Accepted Answer

When treasury shares are sold, the corporation should debit Cash for the amount received and credit Treasury Shares for the cost of the shares sold. The difference between the two amounts, in this case $ 8,000 ($19 - $15), should be recorded in a separate account called Contributed Surplus. Therefore, the correct entry to record the sale of 2,000 treasury shares at $ 19 per share is to credit Treasury Shares for $ 30,000 ($15 × 2,000) and Contributed Surplus for $ 8,000.

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