Lava Lake Inc. bottles and distributes spring water. On February 11 of the current year, Lava Lake reacquired 41,500 shares of its common stock at $42 per share. On April 30, Lava Lake Inc. sold 29,800 of the reacquired shares at $55 per share. On August 22, Lava Lake Inc. sold 11,700 shares at $41 per share. Required: A. Journalize the transactions of February 11, April 30, and August 22. Refer to the Chart of Accounts for exact wording of account titles. B. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year? C. For what reasons might Lava Lake have purchased the treasury stock?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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### Educational Website Content

#### Topic: Treasury Stock Transactions — Example with Lava Lake Inc.

**Introduction:**

Lava Lake Inc. bottles and distributes spring water. This example walks through the process of reacquiring and selling treasury stock to understand the journal entries needed and the impact on the financial statements.

**Scenario:**

- **February 11:** Lava Lake reacquired 41,500 shares of its common stock at $42 per share.
- **April 30:** Lava Lake sold 29,800 of the reacquired shares at $55 per share.
- **August 22:** Lava Lake sold 11,700 shares at $41 per share.

**Required:**

1. **Journalize the Transactions:**
   - February 11
   - April 30
   - August 22
   
   Refer to the Chart of Accounts for exact wording of account titles.

2. **Calculate Paid-In Capital:**
   - Determine the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year.

3. **Reasons for Purchasing Treasury Stock:**
   - Analyze the potential reasons behind Lava Lake's decision to purchase treasury stock.

**Journal Entries:**

A table format is used to log the entries systematically for clarity:

| DATE       | DESCRIPTION                    | POST. REF | DEBIT   | CREDIT  | ASSETS | LIABILITIES |
|------------|--------------------------------|-----------|---------|---------|--------|-------------|
| February 11 | Treasury Stock                 |           | \$1,743,000 |         |        |             |
|            | Cash                            |           |         | \$1,743,000 |        |             |
| April 30   | Cash                            |           | \$1,639,000 |         |        |             |
|            | Treasury Stock                 |           |         | \$1,251,600 |        |             |
|            | Paid-In Capital (Treasure Stock) |           |         | \$387,400  |        |             |
| August 22  | Cash                            |           | \$479,700   |         |        |             |
|            | Treasury Stock                 |           |         | \$492,600  |        |             |
|            | Paid-In Capital (Treasure Stock) |           | \$12,900   |         |        |             |

**Graphs and Diagrams Explanation:**

_No graphs or diagrams were provided in this case._

**
Transcribed Image Text:### Educational Website Content #### Topic: Treasury Stock Transactions — Example with Lava Lake Inc. **Introduction:** Lava Lake Inc. bottles and distributes spring water. This example walks through the process of reacquiring and selling treasury stock to understand the journal entries needed and the impact on the financial statements. **Scenario:** - **February 11:** Lava Lake reacquired 41,500 shares of its common stock at $42 per share. - **April 30:** Lava Lake sold 29,800 of the reacquired shares at $55 per share. - **August 22:** Lava Lake sold 11,700 shares at $41 per share. **Required:** 1. **Journalize the Transactions:** - February 11 - April 30 - August 22 Refer to the Chart of Accounts for exact wording of account titles. 2. **Calculate Paid-In Capital:** - Determine the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year. 3. **Reasons for Purchasing Treasury Stock:** - Analyze the potential reasons behind Lava Lake's decision to purchase treasury stock. **Journal Entries:** A table format is used to log the entries systematically for clarity: | DATE | DESCRIPTION | POST. REF | DEBIT | CREDIT | ASSETS | LIABILITIES | |------------|--------------------------------|-----------|---------|---------|--------|-------------| | February 11 | Treasury Stock | | \$1,743,000 | | | | | | Cash | | | \$1,743,000 | | | | April 30 | Cash | | \$1,639,000 | | | | | | Treasury Stock | | | \$1,251,600 | | | | | Paid-In Capital (Treasure Stock) | | | \$387,400 | | | | August 22 | Cash | | \$479,700 | | | | | | Treasury Stock | | | \$492,600 | | | | | Paid-In Capital (Treasure Stock) | | \$12,900 | | | | **Graphs and Diagrams Explanation:** _No graphs or diagrams were provided in this case._ **
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