Company repurchased 1,000 shares of its $10 par common stock for $15 per share. It uses the Cost Method. Later, it reissued 500 shares for $12 per share. What is the journal entry for the reissuance?

Answer options:

Dr. Cash $6,000; Dr. Retained Earnings $1,500; Cr. Treasury Stock $7,500

Dr. Cash $6,000; Dr. Loss on Sale $1,500; Cr. Treasury Stock $7,500

Dr. Cash $6,000; Cr. Treasury Stock $5,000; Cr. APIC $1,000

Dr. Cash $6,000; Dr. APIC $1,500; Cr. Treasury Stock $7,500

How to approach this question

Cost Method Reissuance: 1. Credit TS at Cost ($15). 2. Debit Cash at Sale Price ($12). 3. Plug the difference. If Credit needed -> APIC-TS. If Debit needed -> APIC-TS (to extent available) then Retained Earnings.

Full Answer

A.Dr. Cash $6,000; Dr. Retained Earnings $1,500; Cr. Treasury Stock $7,500✓ Correct

Under the Cost Method, Treasury Stock is credited at the acquisition cost ($15). Since the reissue price ($12) is lower, the difference is debited to APIC-Treasury Stock (if available) or Retained Earnings. The option assumes no prior APIC-TS.

Common mistakes

Booking a 'Loss' on the income statement (never allowed for equity transactions).

Question 30 All questions Question 32

Practice the full CPA FAR Practice Exam

50 questions · hints · full answers · grading

More questions from this exam

Q1According to the FASB Conceptual Framework, which of the following statements correctly describes...Hard Q2On October 1, Year 1, Host Co. committed to a plan to dispose of a major component of its busines...Hard Q3A company has a debt covenant requiring a current ratio of at least 2.0. On December 31, Year 1, ...Hard Q4Orion Corp. reports under US GAAP. In preparing its statement of cash flows for the year ended De...Hard Q5Parent Co. owns 80% of Sub Co. During Year 1, Parent sold inventory to Sub for $500,000. The cost...Hard

View all 50 questions →