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NINJA Question –
Posy Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the cost method of accounting for treasury stock, the par value method reports a greater amount for:
Answer is D: neither additional paid-in capital nor retained earnings.
The explanation came with this example:
Par value of shares = $1,000
Original issue price = $1,200 ($1,000 par, $200 additional
paid-in capital)
Reacquisition price = $1,100
Reacquisition under COST METHOD:
Treasury shares___________$1,100
__________Cash_________________$1,100
Reacquisition under PAR VALUE METHOD:
Treasury shares____________$1,000
Additional paid-in capital_______ 100
__________Cash__________________$1,100
I believe the journal entry for the PAR VALUE METHOD is wrong. It should be:
Treasury shares___________$1,000
APIC – CS_________________ 200
__________Cash_________________$1,100
__________APIC – TS______________ 100
The answer might or might not be different depending on how you look at it. APIC-TS is definitely greater under par value method. But if we’re just looking at APIC in general, including both APIC-CS/TS, the net effect would be a lower APIC. I picked the wrong answer (greater amount for additional paid-in capital) because the question was focused on TS so I thought they wanted to know the effect on APIC-TS.
FAR 85 June 2015
AUD 80 Nov 2015
REG 83 Nov 2015
BEC 79 Feb 2016
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