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Elston Limited had the following equity accounts on January 1, 2020: Share Capital—Ordinary (£5 par) $400,000, Share Premium—Ordinary $200,000, and Retained Earnings $100,000
Elston Limited had the following equity accounts on January 1, 2020: Share Capital—Ordinary (£5 par) $400,000, Share Premium—Ordinary $200,000, and Retained Earnings $100,000. In 2020, the company had the following treasury share transactions.
| Mar. 1 | Purchased 5,000 shares at $9 per share. |
| June 1 | Sold 500 shares at $12 per share. |
| Sept. 1 | Sold 2,500 shares at $10 per share. |
| Dec. 1 | Sold 1,000 shares at $6 per share. |
Elston uses the cost method of accounting for treasury shares. In 2020, the company reported net income of $34,000.
Instructions:
a. Journalize the treasury share transactions, and prepare the closing entry at December 31, 2020, for net income.
b. Post the journal related to these accounts: (1) Share Premium—Treasury, (2) Treasury Shares, and (3) Retained Earnings. Ese a formal form of General Ledger.
c. Prepare the equity section for Elston Limited at December 31, 2020.
Expert Solution
Answer :
(a) Mar. 1 Treasury Shares (5,000 X $9)..................................................... 45,000
Cash............................................................................................. 45,000
June 1 Cash (500 X $12)......................................................................... 6,000
Treasury Shares (500 X $9)......................................................... 4,500
Share Premium—Treasury
(500 X $3)............................................................................... 1,500
Sept. 1 Cash (2,500 X $10).................................................................... 25,000
Treasury Shares (2,500 X $9)................................. ..................... 22,500
Share Premium—Treasury
(2,500 X $1)........................................................................... 2,500
Dec. 1 Cash (1,000 X $6)...................................................................... 6,000
Share Premium—Treasury
(1,000 X $3)........................................................................... 3,000
Treasury Shares (1,000 X $9)...................................................... 9,000
31 Income Summary........................................................................ 34,000
Retained Earnings....................................................................... 34,000
(b)
Share Premium—Treasury
|
Date |
Explanation |
Ref. |
Debit |
Credit |
Balance |
|||||
|
June 1 Sept. 1 Dec. 1 |
J10 J10 J10 |
3,000 |
1,500 2,500 |
1,500 4,000 1,000 |
Treasury Shares
|
Date |
Explanation |
Ref. |
Debit |
Credit |
Balance |
|||||
|
Mar. 1 June 1 Sept. 1 Dec. 1 |
J10 J10 J10 J10 |
45,000 |
4,500 22,500 9,000 |
45,000 40,500 18,000 9,000 |
Retained Earnings
|
Date |
Explanation |
Ref. |
Debit |
Credit |
Balance |
|||||
|
Jan. 1 Dec. 31 |
Balance |
? J10 |
|
34,000 |
100,000 134,000 |
(c)
ELSTON LIMITED
Statement of Financial Position (Partial)
December 31, 2020
Equity
Share capital—ordinary, $5 par,
80,000 shares issued and
79,000 outstanding........................................................................ $400,000
Share premium—ordinary............................................................................ 200,000
Share premium—treasury............................................................................ 1,000
Retained earnings ....................................................................................... 134,000
Less: Treasury shares (1,000 shares)....................................................... 9,000
Total equity....................................................................................... $726,000
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