The Rolek Company was involved in the following treasury stock transactions during 2010: a. Purchased 40,000 share

Question:

The Rolek Company was involved in the following treasury stock transactions during 2010:

a. Purchased 40,000 share of its $1 par value common stock on the market for $2.50 per share.

b. Purchased 8,000 shares of its $1 par value common stock on the market for $2.80 per share.

c. sold 22,000 shares purchased in a for $65,500.

d. Sold the other 18,000 shares purchased in a for $36,000.

e. Sold 3,000 of the remaining shares of treasury stock for $1.60 per share.

f. Retired all the remaining shares of treasury stock. All shares originally were issued at $1.50 per share.

Required

1. Record the treasury stock transactions in T accounts.

2. What is the reasoning behind treating the purchased of treasury stock as a reduction in stockholders’ equity as opposed to treating it as an investing asset?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...