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The Tornado Truck Body Company decides to repurchase 10,000 shares of its common stock      on...

The Tornado Truck Body Company decides to repurchase 10,000 shares of its common stock      on January 20. The stock has $1 par value, and the market value per share of common stock on January 20 is $8.75. The company decides to sell 5,000 of the treasury stock shares on April 30 for $9.00 per share. What is the amount of the gain recognized as a result of the transaction?

1 $40,000

2 $0

3 $45,000

4 $1,250

5 None of the above

Business   Accounting   
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Answer #1

Ans:

When a company purchases its treasury stock. It is held as a current asset in the books of accounts and when a company resells the purchased treasury stock any amount received higher or lower than its purchase cost is adjusted through Additional Paid in capital or Retined earnings Directly.

No gain or (loss) recognised on sale of treasury stock.

So Correct aanswer is option 2 : $0

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