Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 77

Treasury stock transactions On May 4, 2010, Docker, Inc., purchased 800 shares of its own common stock in the market at a price of $18.25 per share. On September 19, 2010, 600 of these shares were sold in the open market at a price of $19.50 per share. There were 36,200 shares of Docker common stock outstanding prior to the May 4 purchase of treasury stock. A $0.35 per share cash dividend on the common stock was declared and paid on June 15, 2010.

Required:

Use the horizontal model (or write the entry) to show the effect on Docker’s financial statements of

a. the purchase of the treasury stock on May 4.

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b. the declaration and payment of the cash dividend on June 15.

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c. the sale of the treasury stock on September 19.

Step 1 of 5

Treasury stock transactions:

Treasury stock :

The portion of total authorized shares that a firm keeps in its personal treasury is termed as treasury stock. Treasury stock can come from a buyback or repurchase from shareholders; it is possible that it might not have been issued to the public yet.

Therefore, these shares do not require paying dividends, having no voting rights, and must not be used in calculations of shares outstanding.