Reference no: EM132113000

Question - Please make this acceptable to count in my class as participation.

Define the methods for recording treasury stock transactions. Provide an example of the initial purchase and then the reissuance of the shares.

One method for recording treasury stock transactions is the cost method of accounting. With the cost method, the total cost of stock reacquired is charged to a contra account referred to as treasury stock. If the shares are reissued later, and the price is greater than what it was to reacquire them, the profits would be credit to paid-in capital. If a deficit is the result of the stocks' reissuance, the deficit amount is charged to retained earnings, or charged to paid-in capital, then retained earnings, depending on if prior treasury stock transactions took place.

Another method for recording treasury stock transactions is the par value method. With this method, the treasury stock account is only charged for the stated value of the reacquired stocks. Any difference between the par value (stated value) and the cost of reacquisition would go to paid-in capital or retained earnings.

The constructive retirement method of accounting for treasury stock transactions, is similar to the par value method. But, with the constructive requirement method, the treasury stock account is not used initially to record the reacquired treasury stocks. Instead, the journal entries are made as if the stocks or shares were retired when reacquired.