On January 1, Vermont Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, Vermont purchased 3,750 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1. The journal entry to record the purchase of the treasury shares on February 1 would include a

A) credit to Treasury Stock for $90,000
B) debit to Treasury Stock for $90,000
C) debit to a loss account for $112,500
D) credit to a gain account for $112,500

Question

Jenevieve Teodoro · Accepted Answer

Final Answer : B, Explanation :  The journal entry to record the purchase of treasury stock involves a debit to the Treasury Stock account and a credit to Cash or another applicable asset account. In this case, the debit to Treasury Stock would be for the cost of the shares purchased, which is $24 x 3,750 = $90,000. A loss or gain account would only be used if the company sold the treasury shares for more or less than their cost.

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