A company purchased its own shares on January 1, 2014 for $20,000 and debited Treasury Shares for the purchase price. The shares were subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a debit to
A) retained earnings
B) loss from sale of treasury shares
C) Contributed Surplus to the extent that previous net "gains" from sales or retirements of the same class of shares exist, otherwise, to retained earnings
D) Contributed Surplus, regardless of whether previous net "gains" from sales or retirements of the same class of shares exist.

Question

Quizplus · Accepted Answer

The $8,000 difference between the cost and sales price of treasury shares should be recorded as a debit to Contributed Surplus to the extent that previous net "gains" from sales or retirements of the same class of shares exist; otherwise, it should be recorded to retained earnings. This approach allows for the recognition of gains and losses within equity without impacting the income statement directly, unless there are no previous gains to offset the loss.

A Company Purchased Its Own Shares on January 1, 2014