Porter Corp. purchased its own par value stock on January 1, 2014 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from
A) additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.
B) additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.
C) retained earnings.
D) net income.

Question

Quizplus · Accepted Answer

When treasury stock is sold for less than its cost, the difference is first deducted from additional paid-in capital (APIC) associated with the treasury stock transactions to the extent of any "gains" previously recognized. If no such gains or insufficient gains exist in APIC, then the remaining difference is deducted from retained earnings.