004 Treasury Stock Flashcards
What is the effect on the treasury stock account under the par method when donated stock is received?
Effect on the treasury stock account is an increase for the par value of the stock received.
What is the effect on the treasury stock account under the cost method when donated stock is received?
Effect on the treasury stock account is an increase for the fair value of the stock received.
When is paid in capital from treasury stock increased under the par method?
When treasury stock is purchased for less than original issue price.
What accounts may reflect different balances under the cost and par method for the same firm?
Treasury stock, paid in capital in excess of par-common, paid in capital from treasury stock, retained earnings.
What is the relationship of total owners’ equity for cost and par method?
They are equal, although certain components of owners’ equity would show different balances.
Describe the accounting treatment of purchases of stock under the par value method.
1 Treasury stock is debited at par; 2 Additional Paid in Capital (APIC) is debited by amount credited when stock was originally issued; 3 Cash is credited.
Describe the accounting treatment of reissuance of stock under the par value method.
1 Treasury stock is credited at par; 2 Remainder of entry is treated like stock issuance.
How is treasury stock presented on the balance sheet under the par value method?
Reported as a subtraction from the common stock account in the balance sheet.
When is paid in capital from treasury stock decreased under the cost method?
When treasury stock is reissued for less than cost.
How can retained earnings be affected by treasury stock transactions?
Decreased (as a last resort) but never increased.
What is the effect of treasury stock transactions on earnings?
There is no effect.
What is the effect on owners’ equity when treasury stock is purchased and subsequently reissued at a price in excess of cost (using the cost method)?
Increase owners’ equity by the difference in purchase cost and reissuance price.
List the methods for accounting for treasury stock.
- Cost Method 2. Par Value
Describe the cost method for accounting for treasury stock.
1 Purchases are debited at cost; 2 Reissuances debit cash, credit treasury stock at cost, and contributed capital is plugged.
Under the cost method of accounting for treasury stock, how is treasury stock presented on the balance sheet?
Treasury stock is subtracted from very bottom of Owners’ Equity section of the balance sheet.
