BJK Company purchased 1000 shares of its own outstanding $10 par value common stock for $14 per share and then sold 400 shares six months later for $17 a share. Prepare the journal entries for the purchase of the stock and for the sale.
To prepare the journal entries for the purchase of the stock and the sale, we need to follow these steps:
Step 1: Determine the accounts involved in the transaction.
For the purchase of the stock:
- Cash (or Bank), as BJK Company paid for the shares using cash.
- Treasury Stock, as BJK Company is purchasing its own outstanding stock.
For the sale of the stock:
- Cash (or Bank), as BJK Company received cash from selling the shares.
- Treasury Stock, as BJK Company is selling its own outstanding stock.
- Additional Paid-in Capital (APIC) - Treasury Stock, which represents the difference between the original cost and the selling price of the shares.
Step 2: Determine the amounts for each account involved in the transaction.
For the purchase:
- Cash: 1000 shares * $14 per share = $14,000
- Treasury Stock: $10 par value * 1000 shares = $10,000 (par value is usually not recorded on Treasury Stock)
For the sale:
- Cash: 400 shares * $17 per share = $6,800
- Treasury Stock: $10 par value * 400 shares = $4,000 (par value is usually not recorded on Treasury Stock)
- APIC - Treasury Stock: Difference between the purchase cost and selling price of the shares, which in this case is: ($17 - $14) * 400 = $1,200.
Step 3: Prepare the journal entries.
For the purchase:
Dr. Treasury Stock $10,000
Cr. Cash $14,000
For the sale:
Dr. Cash $6,800
Dr. APIC - Treasury Stock $1,200
Cr. Treasury Stock $4,000
That's it! The journal entries for the purchase and sale of the stock have been prepared.