principles of financial accounting 11e needles powers chapter 12 problem 10 400529

The Spivak Company was involved in the following treasury stock transactions during 2011;

a. Purchased 80,000 shares of its $1 par value common stock on the market for $2.50 per share.

b. Purchased 16,000 shares of its $1 par value common stock on the market for $2.80 per share.

c. Sold 44,000 share purchased in a for $131,000.

d. Sold the other 36,000 shares purchased in a for $72,000.

e. Sold 6,000 of the remaining shares of treasury stock for $1.60 per share.

f. retired all the remaining shares of treasury stock. All shares originally were issued at $1.50 per share.

Required

1. Record the treasury stock transactions in T accounts.

2. What is the reasoning behind treating the purchase of treasury stock as a reduction in stockholders’ equity as opposed to treating it as an investment asset?