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22 December, 22:46

Mystic Lake Inc. bottles and distributes spring water. On July 9 of the current year, Mystic Lake reacquired 4,100 shares of its common stock at $82 per share. On September 22, Mystic Lake sold 2,900 of the reacquired shares at $92 per share. The remaining 1,200 shares were sold at $79 per share on November 23. a. Journalize the transactions of July 9, September 22, and November 23. If an amount box does not require an entry, leave it blank. July 9 Sept. 22 Nov. 23 b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? $ c. For what reasons might Mystic Lake Inc. have purchased the treasury stock?

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  1. 22 December, 23:53
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    a. The transactions to be journalized of July 9, September 22, and November 23 are the following:

    Debit Credit

    9-Jul Treasury Stock $336,200

    Cash A/c $336,200

    Debit Credit

    Sept. 22 Cash $266,800

    Treasury Stock $237,800

    Additional Paid in capital $29,000

    Debit Credit

    23-Nov Cash $$94,800

    Additional Paid in capital $3,600

    Treasury Stock $98,400

    b. The balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year is $25,400

    c. Mystic Lake Inc. have purchased the treasury stock because a company is forced to buy back shares from someone who is attempting to gain control of the business and a business has no alternative use for excess cash, and so elects to use it on a stock repurchase.

    Explanation:

    a. Mystic Lake reacquired 4,100 shares of its common stock at $82 per share, hence treasury stock=4,100 * $82=$336,200

    The Transactions of July 9 to journalize are the following:

    Debit Credit

    9-Jul Treasury Stock $336,200

    Cash A/c $336,200

    On September 22, Mystic Lake sold 2,900 of the reacquired shares at $92 per share, hence cash=2,900*$92=$266,800

    Treasury stock=2,900*$82=$237,800

    The Transactions of September 22 to journalize are the following:

    Debit Credit

    Sept. 22 Cash $266,800

    Treasury Stock $237,800

    Additional Paid in capital $29,000

    The remaining 1,200 shares were sold at $79 per share on November 23, hence, cash=1,200*$79=$94,800

    Treasury stock=1,200*$82=$98,400

    The Transactions of November 23 to journalize are the following:

    Debit Credit

    23-Nov Cash $$94,800

    Additional Paid in capital $3,600

    Treasury Stock $98,400

    b. The Balance in Paid in capital = $29,000-$3,600=$25,400

    c. Mystic Lake Inc. have purchased the treasury stock because a company is forced to buy back shares from someone who is attempting to gain control of the business and a business has no alternative use for excess cash, and so elects to use it on a stock repurchase.
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