Wilson Corp. purchased its own par value stock on January 1, 2008 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

The $8,000 difference is recorded as a deduction from additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, it is deducted from retained earnings. This approach prevents the manipulation of reported net income through the purchase and sale of treasury stock.