1. The purchase of Treasury stock is recorded at cost
Debit Treasury Stock for $2,500
Credit Cash for $2,500

2. Debit Cash for 600
Credit Treasury Stock for 500
Credit Paid-in Capital - Share repurchase for 100

3. Debit Cash for 360
Debit Paid-in Capital - Share repurchase for 100
Debit Reatained Earnings for 40
Credit Treasury Stock for 500

How did you get the 500 in #2?

Because the Treasury stock was purchased at $25 per share so you only credit the account at $25 per share.