When treasury stock is purchased for cash at more than its par value,what is the effect on total stockholders' equity under each of the following methods? Cost Method Par Value Method

Question

Quizplus · Accepted Answer

Under the cost method, purchasing treasury stock reduces total stockholders' equity because the cost of the treasury stock is deducted from equity. Under the par value method, the par value of the treasury stock is deducted from the common stock account, and any excess over par is deducted from additional paid-in capital or retained earnings, also reducing total stockholders' equity.

When Treasury Stock Is Purchased for Cash at More Than