(6) Treasury Stock Analysis

Ray Holt Corporation has retained you as a consultant onaccounting policies and procedures. During 2016, the companyengaged in a number of treasury stock transactions, having foreseenan opportunity to report its treasury stock as an asset and torecognize a profit in trading its own stock. The transactions wereas follows:

1.	Reacquired 85 shares of its $10 par common stock at $20 pershare. The shares had originally been issued at $22 per share.
2.	Reacquired 135 shares of its $10 par common stock at $23 pershare. The shares had originally been issued at $22 per share.
3.	Reacquired 60 shares of its $100 par preferred stock at $145per share. The shares had originally been issued at $172 pershare.
4.	Sold all common treasury shares held at $27 per share.
5.	Reacquired 150 shares of its $100 par preferred stock at $128per share. The shares had originally been issued at $172 pershare.
6.	Retired all preferred shares held in the treasury.

Required:

1.	Next Level Is the corporation correct in assuming that itstreasury stock is an asset and that it can recognize a profit orgain from its treasury stock transactions? Explain.
2.	Next Level Prepare an analysis of treasury stock accounting forMr. Robert Richter, the controller. This analysis should containproper journal entries for each of the treasury stock transactionsoccurring during 2016, prepared using the cost method discussed inthe chapter.
3.	Next Level Conclude the analysis by discussing how “gains” ontreasury stock are reported and how treasury stock is reported on acorporation’s balance sheet.

CHART OF ACCOUNTS
Ray Holt Corporation
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 251 Unearned Revenue 255 Bonds Payable 256 Premium on Bonds Payable 261 Income Taxes Payable EQUITY 305 Preferred Stock 311 Common Stock 318 Additional Paid-in Capital on Preferred Stock 322 Additional Paid-in Capital on Treasury Stock: Preferred 323 Additional Paid-in Capital on Treasury Stock: Common 331 Retained Earnings 336 Treasury Stock: Preferred 337 Treasury Stock: Common	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare an analysis of treasury stock accounting for Mr. RobertRichter, the controller. This analysis should contain properjournal entries for each of the treasury stock transactionsoccurring during 2016, prepared using the cost method discussed inthe chapter. Additional Instructions

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GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
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Which of the following is correct regarding treasury stock?

(A) A corporation may not recognize a gain or loss from tradingin its own securities.

(B) All of the choices are correct regarding treasury stock.

(C) Reacquisition and reissuance are treated as a contractionand expansion of shareholders' equity.

(D) Treasury Stock is not asset, a corporation cannot ownitself.

How are "gains" on treasury stock reported?

(A) As a gain.

(B) As an increase in additional paid-in capital.

(C) As a loss.

(D) As a decrease in additional paid-in capital.