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

Exercise 79

Treasury stock transactions On January 1, 2010, Metco, Inc., had issued an outstanding 574,600 shares of $2 par value common stock. On March 15, 2010, Metco, Inc., purchased for its treasury 4,400 shares of its common stock at a price of $75 per share. On August 10, 2010, 1,400 of these treasury shares were sold for $84 per share. Metco’s directors declared cash dividends of $1.20 per share during the second quarter and again during the fourth quarter, payable on June 30, 2010, and December 31, 2010, respectively. A 2% stock dividend was issued at the end of the year. There were no other transactions affecting common stock during the year.

Required:

a. Use the horizontal model (or write the entry) to show the effect of the treasury stock purchase on March 15, 2010.

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b. Calculate the total amount of the cash dividends paid in the second quarter.

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c. Use the horizontal model (or write the entry) to show the effect of the sale of the treasury stock on August 10, 2010.

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d. Calculate the total amount of cash dividends paid in the fourth quarter.

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e. Calculate the number of shares of stock issued in the stock dividend.

Step 1 of 7

Treasury stock transactions:

Treasury stock : The portion of total authorized shares that a firm keeps in their personal treasury is termed as treasury stocks. 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.