[awalker911]

Explain how a company would account for each of the following:
1.Purchase of shares at a price less than par value.
2.Subsequent resale of treasury shares at a price less than purchase price, but more than par value.
3.Subsequent resale of treasury shares at a price greater than both purchase price and par value.


Thank you in advance

[pready]

1. For the purchase of Treasury Stock you use the cost method therefore you Debit treasury Stock for the price paid and Credit Cash for amount paid.

2. Credit treasury Stock for the purchase price per share of the treasury Stock.
Debit Cash for the Full amount Received.
Debit the difference to Paid-in Capital from Treasury Accout up to the Credit
amount in the Account if any.
Debit remaining difference from Retained Earnings.

3. Debit Cash for the Amount Received.
Credit Treasury Stock at price per Share of the Treasury Stock originally purchased.
Credit the difference in Paid-in Capital from Treasury Stock.

Note: Par value of the Common Stock does not matter unless you are retiring Treasury Stock. Treasury Stock does not effect common stock unless you are are retiring them.