Information:

On December 30th, Terrys management completed negotiations with one of their suppliers to cover Terrys $28,000 account with shares of Terrys common stock. Rather than issue additional shares (and deal with the requirements of the SEC), Terry issued the supplier 7,200 shares of the treasury stock originally purchased on November 15, Year 3.

As a relatively new public corporation, Terry still has several large investors that hold seats on its Board and have significant control over the companys decisions. These investors have expressed concern with the companys new Indirect Method Statement of Cash Flows and have asked the management team to switch to a Direct Method Statement with the required Schedule to Reconcile Net Income to Cash Provided from Operations. Because of the influence of these investors, Terrys management team has no choice but to agree with their request (although, they arent thrilled with the extra work this change will cause). They have asked you to convert the current Statement of Cash Flows into a Direct Method version. The management team has decided to condense the line items used in the CFO section to include only seven (7) lines: Customers, Inventory, Selling Expenses, Administrative Expenses, Rent, Interest, and Taxes.

Assignments: Calculations

1. Make the appropriate journal entries to correctly record the payment on A/P with treasury stock.

2. Make the appropriate journal entry, if any, to correctly record the tax effect of the payment on account.