Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Treasury Stock

Financial Accounting

12. Stockholders' Equity

Treasury Stock

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Multiple Choice

Which of the following statements is correct if treasury stock costing $25 per share is reissued at $30 per share?

The $5 per share excess is credited to Additional Paid-In Capital from Treasury Stock.

The $5 per share excess is recognized as a gain on the income statement.

The $5 per share excess is debited to Treasury Stock.

The $5 per share excess is credited to Retained Earnings.

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Verified step by step guidance

Understand the concept of treasury stock: Treasury stock refers to shares that a company has repurchased from its shareholders and holds in its own treasury. When these shares are reissued, any difference between the reissue price and the cost of the treasury stock is accounted for in specific equity accounts.

Identify the reissue price and the cost of the treasury stock: In this case, the treasury stock was originally purchased at $25 per share and is now being reissued at $30 per share. The difference between the reissue price and the cost is $5 per share.

Determine how the $5 per share excess is treated: The $5 per share excess is not recognized as a gain on the income statement because transactions involving treasury stock are equity transactions, not income-generating activities.

Understand the correct accounting treatment: The $5 per share excess is credited to the Additional Paid-In Capital from Treasury Stock account. This account is part of the equity section of the balance sheet and reflects the additional amount received over the cost of the treasury stock.

Clarify why other options are incorrect: The $5 per share excess is not debited to Treasury Stock because the treasury stock account reflects the cost of shares repurchased, not gains or losses. It is also not credited to Retained Earnings because retained earnings represent accumulated profits, not adjustments related to treasury stock transactions.