6,000 shares of common stock with a par value of $10 per share were issued initially at $12 per share.Subsequently,2,000 of these shares were acquired as treasury stock at $15 per share.Assuming that the par value method of accounting for treasury stock transactions is used,what is the effect of the acquisition of the treasury stock on each of the following? Additional Retained
Paid-In Capital Earnings
A) Increase No effect
B) Increase Decrease
C) Decrease Increase
D) Decrease Decrease

Question

Quizplus · Accepted Answer

The acquisition of treasury stock at a price higher than the original issue price (here, acquired at $15 per share vs. issued at $12 per share) results in a decrease in Additional Paid-In Capital (APIC) for the excess over par value ($2 per share originally) and a decrease in Retained Earnings for the excess of the repurchase price over the original issue price, in this case, $3 per share for the 2,000 shares repurchased.

6,000 Shares of Common Stock with a Par Value of $10