(6) Treasury Stock Analysis

Ray Holt Corporation has retained you as a consultant on accounting policies and procedures. During 2016, the company engaged in a number of treasury stock transactions, having foreseen an opportunity to report its treasury stock as an asset and to recognize a profit in trading its own stock. The transactions were as follows:

1.	Reacquired 85 shares of its $10 par common stock at $20 per share. The shares had originally been issued at $22 per share.
2.	Reacquired 135 shares of its $10 par common stock at $23 per share. The shares had originally been issued at $22 per share.
3.	Reacquired 60 shares of its $100 par preferred stock at $145 per share. The shares had originally been issued at $172 per share.
4.	Sold all common treasury shares held at $27 per share.
5.	Reacquired 150 shares of its $100 par preferred stock at $128 per share. The shares had originally been issued at $172 per share.
6.	Retired all preferred shares held in the treasury.

Required:

1.	Next Level Is the corporation correct in assuming that its treasury stock is an asset and that it can recognize a profit or gain from its treasury stock transactions? Explain.
2.	Next Level Prepare an analysis of treasury stock accounting for Mr. Robert Richter, the controller. This analysis should contain proper journal entries for each of the treasury stock transactions occurring during 2016, prepared using the cost method discussed in the chapter.
3.	Next Level Conclude the analysis by discussing how gains on treasury stock are reported and how treasury stock is reported on a corporations balance sheet.

CHART OF ACCOUNTS

Ray Holt Corporation

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
251	Unearned Revenue
255	Bonds Payable
256	Premium on Bonds Payable
261	Income Taxes Payable

	EQUITY
305	Preferred Stock
311	Common Stock
318	Additional Paid-in Capital on Preferred Stock
322	Additional Paid-in Capital on Treasury Stock: Preferred
323	Additional Paid-in Capital on Treasury Stock: Common
331	Retained Earnings
336	Treasury Stock: Preferred
337	Treasury Stock: Common

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Prepare an analysis of treasury stock accounting for Mr. Robert Richter, the controller. This analysis should contain proper journal entries for each of the treasury stock transactions occurring during 2016, prepared using the cost method discussed in the chapter. Additional Instructions

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GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
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2
3
4
5
6
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8
9
10
11
12
13
14
15

Which of the following is correct regarding treasury stock?

(A) A corporation may not recognize a gain or loss from trading in its own securities.

(B) All of the choices are correct regarding treasury stock.

(C) Reacquisition and reissuance are treated as a contraction and expansion of shareholders' equity.

(D) Treasury Stock is not asset, a corporation cannot own itself.

How are "gains" on treasury stock reported?

(A) As a gain.

(B) As an increase in additional paid-in capital.

(C) As a loss.

(D) As a decrease in additional paid-in capital.