DWWR purchased its own common shares for $20,000 and debited the treasury stock account for the purchase price.The shares were subsequently sold for $17,000.The $3,000 difference between the cost and sale price should be recorded as a reduction of:

Question

Quizplus · Accepted Answer

When a company purchases and subsequently sells its own common shares, any difference between the cost and sale price should be recorded as a reduction of contributed capital from treasury stock transactions to the extent of previous net "gains" from sales or retirements of the same class of shares; otherwise, retained earnings should be reduced. In this case, since the sale resulted in a loss, it should be recorded as a reduction of contributed capital from treasury stock transactions, unless there were previous net gains from sales or retirements of the same class of shares. Therefore, the best choice is B.

DWWR Purchased Its Own Common Shares for $20,000 and Debited