Need help figuring out how my professor got the answer he did. Accounting question.

Question

This is the question:

Houghton Company began business on January 1, 2015 by issuing all of its 1,000,000 authorized shares of its $1 par value common stock for $20 per share. On June 30, Houghton declared a cash dividend of $1 per share to stockholders of record on July 31. Houghton paid the cash dividend on August 30. On November 1, Houghton reacquired 200,000 of its own shares of stock for $25 per share. On December 22, Houghton resold 100,000 of these shares for $30 per share. 

Required:

Part a. Prepare all of the necessary journal entries to record the events described above.

This is the journal entry:

Answer:

Part a

Cash (1,000,000 × $20)	20,000,000
Common Stock (1,000,000 × $1)		1,000,000
Additional Paid-in Capital (1,000,000 × $19)		19,000,000
Dividends (1,000,000 × $1)	1,000,000
Dividends Payable		1,000,000
Dividends Payable	1,000,000
Cash		1,000,000
Treasury Stock (1,000,000 × $25)	5,000,000
Cash		5,000,000
Cash (1,000,000 × $30)	3,000,000
Treasury Stock (1,000,000 × $25)		2,500,000
Additional Paid-in Capital (1,000,000 × $5)		500,000

where i highlighted is where im confused. i dont understand at all.

Answer 1

Hi Lauren,

It looks like your Professor has a mistake in the number of shares after Houghton reacquired some of its stock.

It should read, (200,000 × $25) = 5,000,000.

Then, when it resells 100,000 shares at $30 share, that should read, (100,000 × $30) = 3,000,000.

To balance this, you account for 100,000 shares at the original value of $25 and the additional paid-in capital of $5 for those 100,000 shares.

(100,000 x $25) = 2,500,000 and (100,000 x $5) = 500,000

Does this help?