The entry to record Red’s purchase of 10,000 shares of its common stock at $75.00 per share includes a
A. debit to treasury stock for $750,000.
B. debit to retained earnings for $750,000.
C. credit to common stock for $50,000.
D. credit to paid-in capital from treasury stock transaction for $700,000.
To determine the correct entry to record Red's purchase of 10,000 shares of its common stock at $75.00 per share, we need to understand the impact of the transaction on the relevant accounts.
A. Debit to treasury stock for $750,000: This option suggests that Red would record a debit to the treasury stock account for the total cost of the shares purchased. However, treasury stock is typically used to record the stock that a company has bought back from its shareholders and is held as an investment by the company. It does not account for the original issuance of shares.
B. Debit to retained earnings for $750,000: Retained earnings represents the accumulated profits of a company that have been reinvested into the business. This option implies that the purchase of shares would decrease the retained earnings, which is not accurate.
C. Credit to common stock for $50,000: Common stock is a component of shareholders' equity and represents the initial capital contributed by shareholders. With this option, the credit to common stock suggests an increase in the equity account due to the issuance of new shares. However, the value given in the question is incorrect. If 10,000 shares were purchased at $75.00 per share, the total cost would be $750,000, not $50,000.
D. Credit to paid-in capital from treasury stock transaction for $700,000: This option implies that the purchase of shares should be recorded as a credit to the paid-in capital from treasury stock transaction account. However, this account is typically used to record the proceeds received from selling treasury stock, not buying it.
Based on the given options, none of them accurately represent the entry to record Red's purchase of 10,000 shares of its common stock at $75.00 per share.