Subject: Financial Accounting and Principles.

Q NO 1 (8 Marks)

A) Johnston, Inc., engaged in the following transactions involving treasury stock: (3)

Aug. 12 Purchased for cash 15,000 shares of treasury stock at a price of $23 per share.

Dec 4 Reissued 5,000 shares of treasury stock at a price of $35 per share.

June. 22 Reissued 3,500 shares of treasury stock at a price of $22 per share.

a. Prepare general journal entries to record these transactions.

b. Compute the amount of retained earnings that should be restricted because of the treasury stock still owned at June 30.

c. Does a restriction on retained earnings affect the dollar amount of retained earnings reported in the balance sheet? Explain briefly.

B) The common stock of Engro Corporation was trading at $145 per share on July 15, 2020. A year later, on July 15, 2021, it was trading at $210 per share. On this date, Engros board of directors decided to split the companys common stock. (3)

a. If the company decides on a 2-for-1 split, at what price would you expect the stock to trade immediately after the split goes into effect?

b. If the company decides on a 3-for-1 split, at what price would you expect the stock to trade immediately after the split goes into effect?

c. Why do you think Engros board of directors decided to split the companys stock?

C). Engro, Inc., originally sold 100,000 shares of its $10 par value common stock at $25 per share. Several years later the company repurchased 10,000 of these shares at $55 per share. Melcher currently holds those shares in treasury.

Prepare the companys stockholders equity section of the balance sheet to reflect this information. (2)