ABC had 20,000 shares of treasury common stock,which it purchased for $7 per share.Until now,this was ABC's only treasury stock transaction.The shares were originally sold and issued at $5 per share.ABC uses the single-transaction method.ABC is now selling the treasury shares for $5 per share.The entry to record the resale would include a:

Question

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The single-transaction method records the cost of treasury stock as a deduction from retained earnings rather than a reduction of capital stock. Therefore, the entry to record the resale of treasury shares would be a debit to Cash for $100,000 (20,000 shares x $5 per share), a credit to Treasury stock for $140,000 (20,000 shares x $7 per share), and a debit to Retained earnings for the difference of $40,000 ($140,000 credit to Treasury stock - $100,000 debit to Cash).

ABC Had 20,000 Shares of Treasury Common Stock,which It Purchased