[Hammer]

Kuchman Kookware issued 40,000 shares of its $8.00 par value common stock for $9 on January 1, Year 1. Kuchman repurchased 1,000 shares at $8 per share on April 1, Year 2, resold 500 shares at $9 per share on July 1, Year 2, and, on October 1, Year 2, resold the final 500 shares at $5 per share. Assuming Kuchman uses the par value method of accounting for its treasury stock, retained earnings at December 31. Year 2 would be reduced by:

a.

$1,000

b.

$0

c.

$500

d.

$1,500

Explanation

Choice “c” is correct.

I think in terms of journal entries. I understand all of the journal entries related to the four transactions with the exception of J/E#2, the repurchase of 1,000 shares at $8/share. Why is the J/E not simply:

Dr: T-stock $8,000

Cr: Cash $8,000

I don’t understand how you get:

Dr: T-stock $8,000

Dr: APIC $1,000

Cr: APIC – T-stock $1,000

Cr: Cash $8,000

FAR - 70, 81
AUD - 83
BEC - 77
REG - 70, 78

Licensed in Ohio.

Now what the hell do I do?