University Of Central Florida (UCF) ACG2021 Principles Of Financial Accounting Final Practice Exam

The correct entry for recording the sale of treasury stock involves recognizing the cash received and the reduction of treasury stock on the books. When a company sells treasury stock, it receives cash, which increases the company’s assets. This is reflected by debiting the cash account. At the same time, the company must decrease its treasury stock account, which is a contra equity account, leading to a credit entry. Therefore, the entry involves debiting cash to show the increase in assets and crediting treasury stock to reflect the decrease in equity due to the sale of the purchased shares. Recording the sale this way ensures that both the cash received and the adjustment of equity are accurately reflected in the company's financial statements. This practice adheres to proper accounting principles and maintains the integrity of the equity section of the balance sheet.