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Topic: Treasury Stock - Cost Method (

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jay_usa
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Posted: 25 May 2009 at 15:38 \| IP Logged

In Becker's 2008 Book, I am confused by following sentence for Cost method ( Pg F7-13) . Can someone explain ?

- Under the cost method, the treasury shares are recorded and carried at their reacquisition cost ( Fine, No problem )

- A gain or Loss will be determined when treasury stock is reissued or retired, and the original issue price and book value of the stock do not enter into accounting

- The account " APIC from TS " is credited for gains and debited for losses when TS is reissued at prices that differ from the original selling price.

Now my confusion is , in the second sentence it says we do not consider original issue price and in the third sentence it says it is considered? I assume original issue price and original selling price is the same thing ( not sure if it is different )

If I understand this correctly, should not it read like below ?

- The account " APIC from TS " is credited for gains and debited for losses when TS is reissued at prices that differ from the reacquisition cost ( and not original issue or selling price )

Any help will be appreciated.

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Jay CPA,CGMA,CITP,MBA

rchxenson
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Posted: 25 May 2009 at 16:01 \| IP Logged

maybe an example would be best:

Original Issue - 25 shares $1 dollar par, mkt price $2
Dr. Cash     50
      Cr. Common Stock 25
      Cr. APIC        25

Purchase TS - 10 shares mkt price $4 - Cost Method
Dr. Treasury Stock 40
    Cr. Cash        40

Purchase TS - 10 shares mkt price $4 - Equity Method
Dr   RE         20
Dr. APIC       10&nb sp;
Dr. Treasury Stock 10
              CR Cash          30

Regarding the Equity Method - You must take the 20 from RE because only 1 of APIC per share was contributed at the time of issuance (see the first JE). You always remove the APIC and credit the TS for the amount of the orginal issuance, then the rest (cash less the credits) is the resulting RE journal Entry.

rchxenson
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Posted: 25 May 2009 at 16:28 \| IP Logged

can someone confirm me? I am starting to have doubts, lol....going back to chapter 7-2 to check myself now....will report if no one else does in time

jay_usa
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Posted: 25 May 2009 at 16:35 \| IP Logged

Thanks Rchxenson, Good explaination. Makes sense now.

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Jay CPA,CGMA,CITP,MBA

jay_usa
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Joined: 16 Dec 2007
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Posted: 25 May 2009 at 16:37 \| IP Logged

rchxenson wrote:

can someone confirm me? I am starting to have doubts, lol....going back to chapter 7-2 to check myself now....will report if no one else does in time

Really ? LOL... Let me know whatever you can find out.

Thanks again

__________________
Thanks
Jay CPA,CGMA,CITP,MBA

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