AuthorTopic: Request clarification on notes
@2004-04-14 19:37:39
Reference Study Session 7 (Basic Concepts), under subsection (h) Contributed Capital on the topic of Retirement of Treasury Stock:

The notes gave an example of the accounting treatment for the retirement of treasury stock at a lower price of $98, compared to the acquisition price of $112. There is a sentence that reads

"In the Balance Sheet the cost is reported as an unallocated reduction to the stockholders' equity."

Can you please explain what does the cost refers to? Does it refers to the difference between the acqusition price of the treasury stock ($112) and the price of the common stock at par ($110)

@2004-04-15 06:14:37
I believe it should be the difference between the market price (i.e. $98) and the acquisition price, the idea is to report gain / loss to the stockholder's equity. Hope that helps!
@2004-04-15 10:53:24
ok but do you know how the journal entry will be like for this "cost" cos that seemed to be missing from the notes.

To report it under the shareholder's equity, does this mean to leave the "costs - $2" still as a debit balance in the treasury stock account?

CFA Discussion Topic: Request clarification on notes

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