At the end of the prior year, Atoka Industries reported the following account balances: Common Stock ($0.01 par value) $ 2,000 Additional Paid-in Capital 1,000,000 Retained Earnings 1,400,000 Treasury Stock 780,000 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 the current year, what journal entry must be prepared to record the transaction

Answer and Explanation:

According to the scenario, journal entry of the given data are as follow:-

Journal Entry

Cash A/c (10,000 * $50) Dr. $500,000

Additional paid in capital A/c $280,000

To Treasury stock A/c (10,000 * $78) $780,000

(Being the reissue of treasury shares is recorded)

For recording this we debited the cash as it increased the cash and debited the additional paid in capital as it reduced the stockholder equity and credited the treasury stock

Answer and Explanation:

The Journal entry is shown below:-

Cash Dr, $500,000

(10,000 * $50)

Additional Paid in Capital Dr, $280,000

To Treasury Stock $780,000

($10,000 * $78)

(Being treasury stock is recorded)

Therefore If the shares from treasury stock are reissued at a cost that is lower than its cost, so the balance is debited to the additional paid-in capital.