Stockholders' Equity

Question 1

What are the two methods of accounting for treasury stock?

Answer 1

1. Cost method (GL calculated upon reissue)

2. Legal (or par/state value) method (GL calculated immediately upon repurchase)

Question 2

Cost Method

Answer 2

Treasury shares are recorded and carried at their reacquisition cost. A gain or loss will be determined when treasury stock is reissued or retired.

Note: NI or RE will never be increased through treasury stock transactions.