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What is the journal entry to record treasury stock under the par method?

Since the company is repurchasing common stock from the public, that represents treasury stock. A company can either use the cost method or the par method to record treasury stock:

Under the par method, its helpful to understand what the original entry was when the shares were issued. For example, fi the company issued 10,000 shares with a market price of $9 and a par value of $6, then the journal entry would be as follows:

Since the company is repurchasing 1,500 of shares from the general public, those shares are now considered treasury stock. This activity is a cash outflow, so we will always credit cash for the price paid x number of shares. The debit side is the harder part, so let’s go through each calculation:

Treasury stock: Will always be a debit based on the original par value of $6 and the number of shares repurchased. $6 x 1,500 shares = $9,000.

APIC: APIC on a per share basis can only be debited up to what shareholders originally paid, which was $9, or $3 more than the par value. We can never exceed that amount, so take $3 x 1,500 shares and we debit for $4,500.

Retained earnings: Retained earnings is always the plug. It’s almost always going to be the difference between the initial sale price and the repurchase price, so $9 vs $11 equals $2. $2 x 1,500 shares = $3,000.


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  • What is the journal entry to record treasury stock under the cost method?

    Since the company is repurchasing common stock from the public, that represents treasury stock. A company can either use the cost method or the par value method to record treasury stock: Under the cost method, if the company repurchased 5,000 shares at $16 per share, the company would debit treasury stock for $80,000 and credit cash for $80,000.

  • What is the journal entry to record the issuance of common stock?

    A company issues common stock to raise money, so the debit will always be to cash. There will always be a credit to common stock for the # of shares issued x the par value. Additional paid-in capital (APIC) is the plug. If the company sells the shares for more than the par value, then you would credit APIC. IF the company sells the shares for less than the par value, then you would debit APIC. In the example below, the company sold 500 shares for $20 per share. The par value was $5 per share, so that means that investors paid an additional $15 per share. Since the market price was higher than the par value, the plug will be a credit to APIC for $15 per share. Are you preparing for the CPA exam? Universal CPA Review is the only CPA exam review course that uses visual learning and step-by-step explanation videos to help you pass the CPA exam. Start a free 7-day trial! You’ll have full access to the Universal CPA platform! Click the button below to sign up for a free trial. No credit card required.  Start Free Trial