[DD]

Hi there…m having some confusion regarding retirement of shares when it comes to acquisition price is less than par value.

For example 200 shares of $10 par common stock originally sold for $15 and reacquired for $8 are retired.please help me to select right j/e for this.

My confusion is between following two j/e

Dr. Common stock [200×10] 2000
Dr. Additional paid in capital – c/s 1000
Cr. Treasury stock [200×8] 1600
Cr. Additional paid in capital – t/s 1400

Or

Dr. Common stock 2000
Cr. Treasury stock 1600
Cr. Additional paid in capital – t/s 400

Or anything else.

Please help.

[YouCanDoIt]

You first entry looks right.

From source: https://www.cengage.com/resource_uploads/downloads/032465913X_178862.pdf
“When treasury stock is retired, legal capital is reduced. Under the cost method, a corporation
accounts for retirement of treasury stock by offsetting the cost of the retired shares against both the
par value in the Capital Stock account and a pro rata share from the Additional Paid-in Capital
account. It either debits any difference between these two accounts to Retained Earnings or credits
the difference to Additional Paid-in Capital from Treasury Stock.”

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[Author]

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