Question

Sheffield Corp. issued 100000 shares of $10 par common stock for $1340000. A year later Sheffield acquired 16100 shares of its own common stock at $15 per share. Three months later Sheffield sold 8200 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 8200 treasury shares, Sheffield should credit

Answer 1

1. Purchase of Own Stock:

16,100 shares @ 15/ share = 241500

Investment in own stock 241500

To cash 241500

(Being 16100 shares Purchased)

2. Sale of own stock:

8200 shares @ 19/share = 155800

Cash 155800

To additional paid in capital 32800

To investment in own stock 123000

1. Cost method is one of the two methods of accounting for treasury stock, the stock which has been bought back by the issuing company itself. The other method is called the par value method.

2. Under the cost method, the purchase of treasury stock is recorded by debiting treasury stock account by the actual cost of purchase.

3. When treasury shares are later reissued, the treasury stock account is credited for the cost at which they were purchased, cash account is debited for the amount actually received and if the amount received on reissuance of treasury stock is:

• more than the cost of treasury stock, the difference between the amount received and the cost of the treasury stock is credited to additional paid-in capital.
• less than the cost of treasury stock, the excess of cost of treasury stock over the amount received is debited to discount on capital account.