EXERCISE 11-6

Purpose: (L.O. 3) This exercise will illustrate the use of the cost method of accounting for treasury stock transactions under a variety of price relationships.

Cheers Corporation reported the following stockholders' equity items at December 31, 2013. Each share of stock was issued in a prior year for $12 each.

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During 2014, Cheers had the following treasury stock transactions:

  1. Purchased 1,000 shares at $15 per share.
  2. Purchased 1,000 shares at $13 per share.
  3. Sold 1,000 treasury shares at $11 per share.
  4. Sold 1,000 treasury shares at $14 per share.
  5. Purchased and retired 1,000 shares at $16 per share.

Instructions

Prepare the journal entries for the treasury stock transactions listed above. Apply a FIFO (first-in, first-out) approach in determining the cost of treasury shares sold.

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