In 1987 Stuart Corporation began operations issuing 100,000 shares of $1 par value common stock for $25 per share. Since that time the company has been very profitable. The stockhold¬ ers’ equity section as of December 31, 1996, follows. Common stock Additional paid-in capital (C/S) Retained earnings Total stockholders’ equity $ 100,000 2,400,000 4,500,000 $7,000,000 In 1997 the company entered into a program of buying back some of the outstanding shares. During the year the company purchased 30,000 outstanding shares at a price of $95 per share. REQUIRED:

a. Prepare the journal entry to record the purchase of the treasury shares.

b. Assuming that net income of $350,000 was earned and dividends of $50,000 were declared during the year, prepare the stockholders’ equity section of the balance sheet as of the end of 1997.

c. Explain how the dollar value of the treasury stock account can be larger than the dollar amount of contributed capital.