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Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes a ______. (Check all that apply.)Multiple select question.$10,000 debit to Treasury Stock$1,000 debit to Cash$1,000 debit to Treasury Stock$10,000 credit to Treasury Stock$1,000 credit to Treasury Stock$10,000 credit to Cash

Question

Dilution Solutions, Inc. repurchased 500 shares of its 2parvaluecommonstockfor2 par value common stock for 10,000. The journal entry to record this transaction includes a ______. (Check all that apply.)Multiple select question.10,000debittoTreasuryStock10,000 debit to Treasury Stock1,000 debit to Cash1,000debittoTreasuryStock1,000 debit to Treasury Stock10,000 credit to Treasury Stock1,000credittoTreasuryStock1,000 credit to Treasury Stock10,000 credit to Cash

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Solution

The correct answers are:

  • $10,000 debit to Treasury Stock
  • $10,000 credit to Cash

Here's why:

When a company repurchases its own shares, it records the transaction by debiting (increasing) the treasury stock account. The treasury stock account is a contra equity account on the balance sheet, and it's increased when the company buys back its own shares. In this case, the company paid 10,000torepurchasetheshares,soitdebitsthetreasurystockaccountfor10,000 to repurchase the shares, so it debits the treasury stock account for 10,000.

The cash account is credited (decreased) because the company used cash to repurchase the shares. In this case, the company used 10,000cashtorepurchasetheshares,soitcreditsthecashaccountfor10,000 cash to repurchase the shares, so it credits the cash account for 10,000.

The par value of the stock does not affect the journal entry for the repurchase of the shares.

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