Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $35 per share when they were reacquired at a cost of $36 per share and have a $1 par value?Group of answer choicesCash + $35,000Treasury Stock - 36,000Paid in capital, treasury stock - 1,000Cash + $35,000Treasury Stock - $36,000Gain on sale of stock + 1,000Cash + $35,000Treasury Stock + 1,000Paid in capital, treasury stock + 34,000Cash + $35,000Treasury Stock - 36,000Investment income + 1,000
Question
Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for 36 per share and have a 35,000Treasury Stock - 36,000Paid in capital, treasury stock - 1,000Cash + 36,000Gain on sale of stock + 1,000Cash + 35,000Treasury Stock - 36,000Investment income + 1,000
Solution
The correct entry would be:
Cash + 36,000 Paid in capital, treasury stock - $1,000
Here's why:
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Cash increases by $35,000 because the company receives this amount from reissuing the treasury stock.
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Treasury Stock decreases by $36,000 because this is the cost that was initially paid to reacquire the shares, and these shares are now being sold off.
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Paid in capital, treasury stock decreases by $1,000. This represents the loss the company incurs from selling the treasury stock for less than it was reacquired for. This is not a "real" loss in the sense of losing money, but rather a reduction in the additional paid-in capital account on the balance sheet. This is because the company initially recorded the treasury stock at the cost it was reacquired for, and now that it's being sold for less, the difference needs to be accounted for.
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