At the end of the prior year,Atoka Industries reported the following account balances:

The treasury stock arose from a purchase of 10,000 shares of common stock for $78 per share.If the 10,000 treasury shares are issued for $50 per share in in the current year,what journal entry must be prepared to record the transaction?
A) Debit Cash for $500,000, debit Other Losses for $280,000, and credit Treasury Stock for 780,000
B) Debit Cash for $500,000, credit Common Stock for $100, and credit Additional Paid-in Capital for $499,900
C) Debit Cash for $500,000, debit Additional Paid-in Capital for $280,000, and credit Treasury Stock for $780,000
D) Debit Cash and credit Treasury Stock for $500,000

Question

At the end of the prior year,Atoka Industries reported the following account balances:

The treasury stock arose from a purchase of 10,000 shares of common stock for $78 per share.If the 10,000 treasury shares are issued for $50 per share in in the current year,what journal entry must be prepared to record the transaction?
A) Debit Cash for $500,000, debit Other Losses for $280,000, and credit Treasury Stock for 780,000 
B) Debit Cash for $500,000, credit Common Stock for $100, and credit Additional Paid-in Capital for $499,900 
C) Debit Cash for $500,000, debit Additional Paid-in Capital for $280,000, and credit Treasury Stock for $780,000 
D) Debit Cash and credit Treasury Stock for $500,000

Quizplus · Accepted Answer

When the treasury stock is sold at a price different than the cost of the shares, a gain or loss on sale is recognized. In this case, since the sale price is lower than the purchase price, a loss on sale will be recognized.

The journal entry to record the sale of treasury stock is as follows:

Debit Cash for $500,000
Debit Additional Paid-in Capital for $280,000 (to eliminate the credit balance in this account created when the treasury shares were purchased)
Credit Treasury Stock for $780,000 (to eliminate the treasury shares from the balance sheet)

Therefore, option C is the correct answer.

At the End of the Prior Year,Atoka Industries Reported the Following