[Anonymous]

Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury stock at December 31, Year 1. During Year 2, transactions involving Nest’s common stock were as follows:

May 3

1,000 shares of treasury stock were sold.

August 6

10,000 shares of previously unissued stock were sold.

November 18

A 2-for-1 stock split took effect.

Laws in Nest’s state of incorporation protect treasury stock from dilution. At December 31, Year 2, how many shares of Nest’s common stock were issued and outstanding?

Shares Issued Outstanding

a. 222,000 218,000

b. 220,000 216,000

c. 220,000 212,000

d. 222,000 214,000

The correct answer is “C.” My question is on the shares outstanding part. According to Becker shares outstanding is (95,000 + 1,000) x 2 = 212,000.

However when treasury stock is sold, the JE under the cost method should be

DR: Cash

CR: Treasury stock.

In addition, shares outstanding should only be the common stock + restricted shares. So how come it is 95,000 + 1,000?

Thanks!