Treasury stock was acquired for cash at a price in excess of its par value.The treasury stock was subsequently reissued for cash at a price in excess of its acquisition price.Assuming that the cost method of accounting for treasury stock transactions is used,what is the effect on retained earnings? Acquisition of Reissuance of
Treasury Stock Treasury Stock

Question

Quizplus · Accepted Answer

Under the cost method, the acquisition of treasury stock does not affect retained earnings; it is recorded by decreasing cash and equity for the cost of the shares acquired. The reissuance of treasury stock at a price above its acquisition cost also does not affect retained earnings; the excess over cost is credited to additional paid-in capital, not retained earnings.

Treasury Stock Was Acquired for Cash at a Price in Excess