Reference no: EM133058200

Question - Scenario - Russell Company, a publicly traded company, reacquired (i.e., repurchased) 500,000 shares of its common stock on July 20, 2019, at a cost of $28 per share. The treasury shares will be held for future sale and will not be retired. The current market price of the stock was $20 per share when the 500,000 shares were reacquired. The shares that were reacquired had been owned by a particular group of shareholders who had been dissatisfied with Russell Company's earnings trend, stock price, and dividends paid. In fact, this group of shareholders had been so disgruntled that they had filed a lawsuit against Russell's directors during 2018. The shareholders' suit claimed damages of $3 million because of the Board of Director's failure to fulfill its responsibility to maximize shareholders' value. Immediately following the treasury stock purchase in July of 2019, the shareholders dropped their lawsuit, with neither Russell Company nor its directors having to offer or pay a settlement. It can be assumed that the shareholders dropped the lawsuit because the company repurchased the shares of stock. Russell is trying to determine how it should record the purchase of the 500,000 shares of treasury stock on July 20, 2019.

1. What ASC paragraph or paragraphs would you use to determine the general rule for recording treasury stock purchases?

2. What ASC paragraph or paragraphs would you use to determine how Russell should record this treasury stock purchase?

3. Prepare the recommended journal entry that would be required to record the purchase of the treasury stock on July 20, 2019.

4. In a few sentences, state your support for the journal entry you made, including relevant references and quotes.