Salon Company originally issued 4,000 shares of $10 par value common stock for $120,000 ($30 per share). Salon subsequently purchases 400 shares of treasury stock for $27 per share and resells the 400 shares of treasury stock for $29 per share. In the entry to record the sale of the treasury stock, there will be a

Question

Quizplus · Accepted Answer

The sale of treasury stock results in an increase in the Paid-In Capital from Treasury Stock account, which represents the amount the company received in excess of the cost of the treasury stock. The calculation of this amount is $29 (selling price) - $27 (cost) = $2 per share, multiplied by the 400 shares sold, which equals $800. Therefore, there will be a credit to Paid-In Capital from Treasury Stock for $800. The Common Stock and Treasury Stock accounts are not affected by the sale of treasury stock. The Paid-In Capital in Excess of Par account is only used when stock is sold above its par value, which is not the case in this scenario.

Salon Company Originally Issued 4,000 Shares of $10 Par Value