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Area II: Balance Sheet AccountsFAREquityTreasury Stock

CPA · Question 33 · Area II: Balance Sheet Accounts

A company uses the Cost Method for treasury stock. <br/>- Original Issue: 10,000 shares at $10 par for $15.<br/>- Repurchase: 1,000 shares at $20.<br/>- Reissue: 500 shares at $25.<br/><br/>What is the journal entry for the reissuance?

Answer options:

A.

Dr Cash $12,500; Cr Treasury Stock $5,000; Cr APIC $7,500

B.

Dr Cash $12,500; Cr Treasury Stock $10,000; Cr APIC-TS $2,500

C.

Dr Cash $12,500; Cr Treasury Stock $10,000; Cr Retained Earnings $2,500

D.

Dr Cash $12,500; Cr Common Stock $5,000; Cr APIC $7,500

How to approach this question

Cost Method: Treasury Stock is held at Cost ($20). When reissued, credit TS at Cost. Difference goes to APIC-Treasury Stock (if gain) or APIC-TS/RE (if loss).

Full Answer

B.Dr Cash $12,500; Cr Treasury Stock $10,000; Cr APIC-TS $2,500✓ Correct
B
Reissue 500 shares.<br/>Debit Cash: 500 * $25 = $12,500.<br/>Credit Treasury Stock (at cost): 500 * $20 = $10,000.<br/>Credit APIC - Treasury Stock: $2,500 (Plug).

Common mistakes

Using Par Value method concepts (crediting TS at par); crediting Retained Earnings (gain on own stock is not income).
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