On October 10, the stockholders’ equity of Sherman Systems appears as follows. Common stock–$10 par value, 90,000 shares authorized, issued, and outstanding$900,000
Paid-in capital in excess of par value, common stock 306,000
Retained earnings 1,008,000
Total stockholders’ equity$2,214,000

1.
Prepare journal entries to record the following transactions for Sherman Systems.

a.
Purchased 6,800 shares of its own common stock at $43 per share on October 11.

b. Sold 1,450 treasury shares on November 1 for $49 cash per share.
c. Sold all remaining treasury shares on November 25 for $38 cash per share.
1.Record the purchase of 6,800 shares of its own common stock for $43 cash per share.

2.Record the reissue of 1,450 shares of the treasury stock for $49 cash per share.

3.Record the reissue of the remaining shares of the treasury stock for $38 cash per share.

2.
Prepare the revised equity section of its balance sheet after the October 11 treasury stock purchase.

Sherman Systems

1. Journal Entries

                                                        Debit            Credit

a)  October 11:

Treasury Stock                            $68,000

Additional Paid-in Capital         $224,400

Cash                                                                     $292,400

To record purchase of 6,800 shares at $43 per share.

b) November 1:

Cash                                          $71,050

Treasury Stock                                                 $14,500

Additional Paid-in Capital                                $56,550

To record sale of 1,450 treasury shares at $49 per share.

c) November 25:

Cash                                       $203,300

Treasury Stock                                                  $53,500

Additional Paid-in Capital                                $149,800

To record sale of 5,350 treasury shares at $38 per share.

2. Revised Equity Section of Sherman Systems' Balance Sheet as at October 11:

Common stock at“$10 par value,

 90,000 shares authorized, issued, and outstanding $ 900,000

Paid-in capital in excess of par value, common stock        81,600

Treasury Stock                                                                    (68,000)

Retained earnings                                                           1,008,000

Total stockholders' equity                                            $1,921,600

Explanation:

1. Additional Paid-in Capital:

Balance on October 10       $306,000

Treasury Stock                   ($224,400)

Balance on October 11        $81,600

2. Treasury Stock is a contra account to Common Stock.  It represents the purchase of its own shares by a company.  There are two methods for accounting for treasury stock.  One is the par value method, where the adjustments for above or below par value are made in the Additional Paid-in Capital account.  The other method is the costing method, where the adjustments for above or below par value are made in the Treasury stock.

3. The equity section prepared above is limited to the October 11 transaction.  The transactions occurring on November 1 and 25 were not required by the question.

4.  The remaining shares of the treasury stock reissued on November 25 is equal to 6,800 - 1,450 = 5,350 shares.

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