Question

Carson Corp. purchased its own par value stock on January 1, 2021 for $39,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $24,000. The $15,000 difference between the cost and sales price should be recorded as a deduction from

Answer 1

Whenever the company purchases its shares from the open market, treasury stock is created, ie., this stock is not included for the calculation of EPS as this is not outstanding anymore

There are two methods in recording the transactions os treasury stock.

Cash method

Par value method

In this case company records the treasury at par value price. Hence this method is par value method.

Under this method, when company purhcases its shares,company debits treasury account with the par value, and the excess amount above the par value is debited to Additionally paid in capital A/c and the cash A/c is credited

When the company re sold its shares less than the purchase price, then the loss is to deducted from the Additionally paid in capital

In this case $15000 is to be deducted from additionally paid in capital A/c