[maffs]

Park Corp.’s equity accounts at December 31, Year 4, were as follows:
Common stock, $20 par $8,000,000
Additional paid-in capital 2,550,000
Retained earnings 1,275,000

All shares of common stock outstanding at December 31, Year 4, were issued in Year 1 for $26 a share. On January 4, Year 5, Park reacquired 20,000 shares of its common stock at $24 a share and retired them. Immediately after the shares were retired, the balance in additional paid-in capital was
A. $2,590,000
B. $2,510,000
C. $2,430,000
D. $2,470,000
Answer (D) is correct.
The 20,000 shares of common stock that were reacquired and retired were originally issued for $520,000 (20,000 shares × $26). Of this amount, $400,000 (20,000 shares × $20 par) should have been credited to common stock, with the remaining $120,000 ($520,000 – $400,000) credited to additional paid-in capital. The 20,000 shares were reacquired for $480,000 (20,000 shares × $24). To record the purchase and retirement, $400,000 should be debited to the common stock account, with the remaining $80,000 ($480,000 – $400,000) debited to additional paid-in capital. Thus, the additional paid-in capital following the retirement of the shares should be $2,470,000 ($2,550,000 – $80,000).

—————————————-
For buyback, I have
Debit treasury stock for $480,000 (20,000 * $24)
Credit cash for $480,000 (20,000 * $24)

However for retirement, I have
Debit common stock for $400,000 (20,000 * $20 par)
Debit APIC – CS for $120,000 (20,000 * $6 from original issue)
Credit treasury stock for $480,000 (20,000 * $24)
Credit PIC – retirement of treasury stock for $40,000

In the previous thread, they debited $80,000 instead (20,000 * $4 from reacquistion).
However, aren’t you always supposed to debit the original amount of Common Stock and APIC-CS from original issue?
Or is this simply just cancelling the terms out (APIC-CS $120,000 – PIC-retirement of treasury stock $40,000 = $80,000)? I thought these Paid in Capital accounts are technically different though?

[Sweet<3 soon to be CPA]

Hi –

If this were the Cost Method APIC balance would not be changed.

Par Method APIC is reduced

$480,000 ($24 * 20,000 reacquired stock)
$400,000 ($20 * 20,000 par @ original issuance)
Difference is $80,000

$26 is the original COST of the stock – once sold is irrelevant other than creating funds in the APIC account.
When TS is purchased back at a NEW cost the diff between Par and the reacquired cost is what is removed from APIC – Par is Par and can not be removed from the C/S account.

[maffs]

Was wondering because I'm using Gleim and in the outline, it states that: Additional paid-in capital is debited to the extent it exists from the original issuance.

[maffs]

They also Debit additional pain-in capital in the example and explain that it is because the original par value was $10,000 and additional paid-in capital was $90,000 ($100,000 issue – $10,000 par).

At least in regards to this example, Additional paid-in capital – common stock should actually have been $40,000 ($50,000 reacquired cost – $10,000 par cs) then to account for the reacquired TS cost?

:T

[Author]

Replies