Friday, February 8, 2013

Going About Reissuing Treasury Stock: How To Guide.

Reissuing Treasury Stock

Treasury stock can be reissued by selling it at cost, above cost, or below cost.
Selling Treasury Stock at Cost If treasury stock is reissued at cost, the entry is the reverse of the one made to record the purchase. For instance, if on May 21 Cyber reissues 100 of the treasury shares purchased on May 1 at the same $11.50 per share cost, the entry is




Point: Treasury stock does not represent ownership. A company cannot own a part of itself.

Selling Treasury Stock above Cost
If treasury stock is sold for more than cost, the amount received in excess of cost is credited to the Paid-In Capital, Treasury Stock account. This account is reported as a separate item in the stockholders’ equity section. No gain is ever reported from the sale of treasury stock. To illustrate, if Cyber receives $12 cash per share for 400 treasury shares costing $11.50 per share on June 3, the entry is




Selling Treasury Stock below Cost
When treasury stock is sold below cost, the entry to record the sale depends on whether the Paid-In Capital, Treasury Stock account has a credit balance. If it has a zero balance, the excess of cost over the sales price is debited to Retained Earnings. If the Paid-In Capital, Treasury Stock account has a credit balance, it is debited for the excess of the cost over the selling price but not to exceed the balance in this account. When the credit balance in this paid-in capital account is eliminated, any remaining difference between the cost and selling price is debited to Retained Earnings. To illustrate, if Cyber sells its remaining 500 shares of treasury stock at $10 per share on July 10, equity is reduced by $750 (500 shares× $1.50 per share excess of cost over selling price), as shown in this entry:

Point: The phrase treasury stock is believed to arise from the fact that reacquired stock is held in a corporation’s treasury.

Point: The Paid-In Capital, Treasury Stock account can have a zero or credit balance but never a debit balance.




This entry eliminates the $200 credit balance in the paid-in capital account created on June 3 and then reduces the Retained Earnings balance by the remaining $550 excess of cost over selling price. A company never reports a loss (or gain) from the sale of treasury stock.

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