M3 Cost & Par Methods for accounting for T-Stock Flashcards
Which method for Treasury Stock is used 95% of the time
The cost method
How is treasury stock accounted for using the Cost method?
Shares are recorded and carried at their reacquisition cost.
Gains or losses are recognized upon reissue or retirement. (The original issue price and BV do not enter into the accounting)
What is the JE for issuance of stock (both par & Cost)
DR Cash (FMV)
CR Common Stock (Par)
CR APIC C/S
What is the JE for a repurchase (Cost method)
DR T-Stock (@ repurchase price)
CR Cash (@ Repurchase price)
Write the JE for a Reissue above cost (Cost method)
DR Cash (@sale price)
CR T-Stock (@ Repurchase price)
CR APIC-T/S (@Gain on sale)
What is the JE for a Reissue below cost (Cost method) If there is no previous Credit balance in APIC T/S
If there is no balance in APIC T/S
DR Cash (Sale price)
DR Retained Earnings (loss)*
CR T-Stock (Repurchase price)
*Reducing RE with a debit to bring stockholders equity back down to the amount of assets
What is the JE for a Reissue Below cost (Cost method) If THERE IS a previous Credit balance in APIC T/S
If there is a previous credit balance in APIC T/S then a loss will reduce the account to a zero balance and the remaining loss will reduce retained earnings
DR Cash (Sale price)
DR APIC T/S (remaining credit balance)
DR Retained Earnings (remaining loss not absorbed by APIC T/S)*
CR T-Stock (Repurchase price)
How is treasury stock accounted for using the Par method?
-Calculate gain or losses immediately upon repurchase
- Calculate the gain or loss: original selling price - repurchase price
- Reverse original entry for shares repurchased: (DR treasury stock at par)*
- Credit cash price paid
*If repurchasing at a higher price than sale and no previous balance exists in the APIC T/S account than Debit Retained earnings
Cr apic c/s if reissued at a gain
What is the JE for a repurchase below issue price (Par method)
DR T-Stock @ Par
DR APIC C/S PLUG
CR APIC T/S @ sale -repurchase
CR Cash @ repurchase price
*The gain is being recognized by the Credit to APIC T/S and being reversed from APIC C/S
What is the JE for a repurchase above issue price (Par method)
DR T-Stock @ Par
DR APIC C/S PLUG
DR APIC T/S (or RE) @ sale -repurchase
CR Cash @ repurchase price
*If repurchasing at a higher price than sale and no previous balance exists in the APIC T/S account than Debit Retained earnings
Write the JE for a Reissue above cost (Par method)
DR Cash Reissue price
CR T-Stock Par
CR APIC C/S
- Difference from cost are APIC C/S is credited vs APIC T/S and T-stock is recorded at par not prior repurchase price
Write the JE for the Retirment of shares (Par method)
DR C/S @ PAR
CR T-Stock @ Par
Write the JE for the Retirment of shares (Cost method)
DR C/S @ PAR
DR RE for loss
DR APIC C/S PLUG
CR T-Stock @ repurchase
What is the JE for donated stock received
DR Donated treasury stock @FMV
CR Additional paid-in capital @ FMV
What is the JE for donated stock sold
DR Cash @ sale price
DR APIC (if SP < original FMV)
CR APIC (if SP>Original FMV)
CR Donated treasury stock (@ book or original FMV)
