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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