Choice "A" is correct. Jan. 5 ISSUED 20,000 shares, $10 par at $15 | Debit (Dr) | Credit (Cr) |
|---|
| Cash [$15/sh × 20,000] | $ 300,000 | | | Common stock | | $ 200,000 | | APIC [$5/sh × 20,000 sh] | | 100,000 |
July 14 PURCHASE OF TREASURY STOCK 5,000 shares at $17$85,000 | Debit (Dr) | Credit (Cr) |
|---|
| Treasury stock [$10 par × 5,000 sh] | $ 50,000 | | | APIC [$5 orig APIC/sh × 5,000 sh] | 25,000 | | | Retained earnings [$85,000 − 50,000 − 25,000 | 10,000 | | | Cash | | $ 85,000 |
Dec 27 TREASURY STOCK REISSUANCE 5,000 shares at $20$100,000 | Debit (Dr) | Credit (Cr) |
|---|
| Cash | $ 100,000 | | | Treasury stock [$10 par × 5,000 sh] | | $ 50,000 | | APIC [5,000 sh × ($20/sh − $10 par)] | | 50,000 |
APIC: $100,000 - 25,000 + 50,000 = $125,000 Choice "c" is incorrect. APIC from the issuance of stock on Jan. 5 equals $100,000.
Choice "d" is incorrect. APIC of $140,000 erroneously includes the debit of $10,000 to retained earnings rather than the $25,000 debit to APIC when the treasury stock is purchased on July 14.
Choice "b" is incorrect. APIC of $150,000 ignores the July 14 purchase of 5,000 shares of treasury stock at $17 per share [($17 purchase price − $10 par − $2 excess of purchase price over issue price) times 5,000 shares$25,000]. APIC must be reduced by $25,000 for the July 14 purchase. The $5 per share is the amount that originally "hit" APIC when the shares were originally issued. |
