When treasury stock is reissued at a price that is less than their cost, the difference should be credited to retained earnings.

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When a company reissues treasury stock at a price below its original cost, it is essentially selling the stock for less than what it paid to repurchase it. This results in a loss for the company. According to generally accepted accounting principles (GAAP), this loss cannot be recorded as an operating loss on the income statement. Instead, the loss is accounted for in the equity section of the balance sheet.The accounting entry to record the reissuance of treasury stock at a price below cost involves debiting the cash account for the amount of proceeds received from the sale, debiting the treasury stock account for the cost of the treasury shares being reissued, and crediting the additional paid-in capital (APIC) account for any excess of the cost over the cash received, up to the amount of APIC that was originally recorded when the treasury stock was repurchased. If the loss exceeds the available APIC, the remaining difference is then credited to retained earnings.
Here is the journal entry for such a transaction:
1. Debit Cash (for the proceeds received from the reissuance)
2. Debit Treasury Stock (for the cost of the treasury shares)
3. Credit Additional Paid-In Capital, Treasury Stock (only to the extent of previous credits from the original repurchase)
4. Credit Retained Earnings (for any remaining difference after APIC is exhausted)
This treatment ensures that the loss from selling the treasury stock below cost is absorbed by the equity accounts and does not affect the company's reported operating results. It is important to note that the credit to retained earnings represents a reduction in the earnings that are available for distribution to shareholders as dividends.

When Treasury Stock Is Reissued at a Price That Is