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On August 1, 2014, Amherst Company reacquired 4,000 shares of its $15 par value common stock for $18 per share. Amherst uses the cost method to account for treasury stock. What journal entry should Amhurst make to record the acquisition of treasury stock?

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Parrain

Answer:

Using the cost method means that the stock is recorded at the price it cost to buy it back.

Journal entry is therefore:

Date                     Account Title                                       Debit                 Credit

Aug 1, 2014         Treasury Stock                                $72,000

                            Cash                                                                           $72,000

Working:

= 4,000 shares * 18

= $72,000

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