Fechter Corporation: Stockholders' Equity and Treasury Stock Transactions

Chapter 11 Homework: Fechter Corporation

Introduction

  • The assignment covers stockholders' equity accounts and treasury stock transactions for Fechter Corporation as of January 1, 2022.

Stockholders' Equity Accounts on January 1, 2022

  • Common Stock:
      - Amount: $500,000
      - Par Value: $5 per share
  • Paid-in Capital in Excess of Par-Common Stock:
      - Amount: $200,000
  • Retained Earnings:
      - Amount: $100,000

Treasury Stock Transactions in 2022

Transactions Record

  1. March 1, 2022:
       - Purchased 5,000 shares at $8 per share.
       - Total cost:
         - 5,000extsharesimes8extUSD/share=40,000extUSD5,000 ext{ shares} imes 8 ext{ USD/share} = 40,000 ext{ USD}

  2. June 1, 2022:
       - Sold 1,000 shares at $12 per share.
       - Total proceeds:
         - 1,000extsharesimes12extUSD/share=12,000extUSD1,000 ext{ shares} imes 12 ext{ USD/share} = 12,000 ext{ USD}

  3. September 1, 2022:
       - Sold 2,000 shares at $10 per share.
       - Total proceeds:
         - 2,000extsharesimes10extUSD/share=20,000extUSD2,000 ext{ shares} imes 10 ext{ USD/share} = 20,000 ext{ USD}

  4. December 1, 2022:
       - Sold 1,000 shares at $7 per share.
       - Total proceeds:
         - 1,000extsharesimes7extUSD/share=7,000extUSD1,000 ext{ shares} imes 7 ext{ USD/share} = 7,000 ext{ USD}

Cost Method of Accounting for Treasury Stock

  • Fechter Corporation uses the cost method for accounting treasury stock. Under this method, the cost of treasury stock is recorded at the price paid to repurchase it.

Journalization of Treasury Stock Transactions

Journal Entries

  1. March 1, 2022:
       - Debit Treasury Stock: $40,000
       - Credit Cash: $40,000

  2. June 1, 2022:
       - Debit Cash: $12,000
       - Credit Treasury Stock: $8,000
       - Credit Paid-in Capital from Treasury Stock: $4,000 (the gain on sale)

  3. September 1, 2022:
       - Debit Cash: $20,000
       - Credit Treasury Stock: $16,000
       - Credit Paid-in Capital from Treasury Stock: $4,000

  4. December 1, 2022:
       - Debit Cash: $7,000
       - Credit Treasury Stock: $7,000

Closing Entry for Net Income
  • December 31, 2022:
       - Debit Income Summary: $30,000
       - Credit Retained Earnings: $30,000

T-Accounts for Fechter Corporation

T-Accounts Overview

  1. Treasury Stock Account:
       - Debit Entries:
         - March 1: $40,000
         - June 1: $8,000
         - September 1: $16,000
         - December 1: $7,000

       - Total Balance: $40,000 + $8,000 + $16,000 + $7,000 = $71,000

  2. Paid-in Capital from Treasury Stock:
       - Credit Entries:
         - June 1: $4,000
         - September 1: $4,000

       - Total Balance: $4,000 + $4,000 = $8,000

  3. Retained Earnings:
       - Beginning Balance: $100,000
       - Add Net Income: $30,000
       - Total Ending Balance:
         - 100,000+30,000=130,000extUSD100,000 + 30,000 = 130,000 ext{ USD}

Stockholders' Equity Section

Stockholders' Equity at December 31, 2022
  1. Common Stock: $500,000
  2. Paid-in Capital from Treasury Stock: $8,000
  3. Retained Earnings: $130,000
  4. Less Treasury Stock: ($71,000)
  5. Total Stockholders' Equity:
       - 500,000+8,000+130,000−71,000=567,000extUSD500,000 + 8,000 + 130,000 - 71,000 = 567,000 ext{ USD}

Summary

  • The report illustrates Fechter Corporation's treasury stock transactions under the cost method, with journal entries, T-accounts, and stockholders' equity displayed comprehensively.