How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

a. As ordinary earnings shown on the income statement.

b. As paid-in capital from treasury stock transactions.

c. As an increase in the amount shown for common stock.

d. As an extraordinary item shown on the income statement.

Question

Business

Kaya Landry

17 February, 19:48

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

a. As ordinary earnings shown on the income statement.

b. As paid-in capital from treasury stock transactions.

c. As an increase in the amount shown for common stock.

d. As an extraordinary item shown on the income statement.

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Answers (1)

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Ignacio Morgan · Answer 1

b. As paid-in capital from treasury stock transactions.

Explanation:

No gain is recognize when selling stock, as this represent contribution to the company from the stockholders. This is not a gain for the company is just a contribution.

The treasury stock will be write-off, cash will be debited for the amount received and then, any difference will be settle by debiting or crediting the paid-in capital from Treasury Stock.