Question

Anthem Inc. issues 200,000 shares of stock with a par value of $0.01 for $150 per share. Three years later, it repurchases these shares for $80 per share. Anthem records the repurchase in which of the following ways?
A. Debit Common Stock for $2.000, debit Additional Paid-in Capital for $29.998,000 and credit Cash for $30 million.
B. Debit Treasury Stock for $16 million and credit Cash for $16 million.
C. Debit Common Stock for $2,000, debit Additional Paid-in Capital for $15.998.000 and credit Cash for $16 million.
D. Debit stockholders' Equity for $30 million, credit Additional Paid-in Capital for $16 million and credit Cash for $16 million.

Answer 1

Answer:

B. Debit treasury stock for $16 million and Credit cash for $16 million

Explanation:

The journal entry below shows how Anthem records the repurchase

Treasury stock account Dr. $16 million

(200,000 shares × $80 per share)

To Cash account Cr. $16 million

Treasury stock is debited so as to decrease total shareholder's equity while cash is credited in order to record the expenditure of the company.