Question

For numerous reasons, a corporation may reacquire shares of its own capital stock. When a company purchases treasury stock, it usually accounts for the stock using the cost method. Instructions

Explain how a company would account for each of the following:

1. Purchase of treasury shares at a price less than par value.

2. Subsequent resale of treasury shares at a price less than purchase price, but more than par value.

3. Subsequent resale of treasury shares at a price greater than both purchase price and par value.

4. Effect on net income.

Answer 1

ANSWER:

• 1. Treasury stock record would be charged for the all out estimation of procurement, in spite of the fact that the bought cost was underneath of standard worth.

• 2. The treasury stock is credited with the real estimation of offers, abundance of standard worth that is esteem distinction in the middle of unique expense and deals would be charged to paid-in-capital from prior deals record of treasury stock and the remaininf worth will be charged to held income.

• 3.The treasury stock is credited with the genuine estimation of offers, overabundance of standard worth that is esteem contrast in the middle of unique expense and deals would be charged to paid-in-capital from prior deals record of treasury stock.

• 4. The total compensation would not be reflected as a record of treasury stock exchanges.