ExpertMedium1 markMultiple Choice
CPA · Question 33 · Area II: Balance Sheet Accounts
On January 1, Year 1, a company had 10,000 shares of $10 par common stock outstanding (originally issued at $15). On March 1, it reacquired 1,000 shares at $20 per share. The company uses the Cost Method for treasury stock. On July 1, it reissued 500 of these shares at $25 per share. <br/>What is the credit to Additional Paid-in Capital (APIC) - Treasury Stock on July 1?
On January 1, Year 1, a company had 10,000 shares of $10 par common stock outstanding (originally issued at $15). On March 1, it reacquired 1,000 shares at $20 per share. The company uses the Cost Method for treasury stock. On July 1, it reissued 500 of these shares at $25 per share. <br/>What is the credit to Additional Paid-in Capital (APIC) - Treasury Stock on July 1?
Answer options:
A.
$7,500
B.
$5,000
C.
$2,500
D.
$0
How to approach this question
Cost Method: <br/>Buyback: Debit TS @ Cost ($20). <br/>Reissue: Credit TS @ Cost ($20). <br/>Difference goes to APIC-TS (if gain) or APIC-TS/RE (if loss). <br/>Here: Sold at $25, Cost $20. Credit APIC-TS $5 * 500.
Full Answer
C.$2,500✓ Correct
C
Reissue Price: $25.<br/>Cost of Treasury Stock: $20.<br/>Excess: $5 per share.<br/>Total Credit to APIC-TS = 500 shares × $5 = $2,500.
Common mistakes
Using the Par Value method logic (comparing to original issue price).
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