CFA Practice Question
Holiday Corp. holds 10,000 shares of its $10 par value common stock as treasury stock reacquired in 2010 for $120,000. On December 12, 2012, Holiday reissued all 10,000 shares for $190,000. Under the cost method of accounting for treasury stock, the reissuance resulted in increasing ______.
A. retained earnings by $70,000.
B. capital stock by $100,000.
C. additional paid-in capital by $70,000.
Explanation: Under the cost method, treasury stock is decreased by $120,000, cash is increased by $190,000 and the difference (which is like a gain) is reported as an increase in additional paid-in capital. Accounting rules do not allow a firm to record a gain or loss when it buys back treasury stock because the transaction is viewed as an equity transaction.
User Contributed Comments 3
| User | Comment |
|---|---|
| adansaenz | Can someone make clear for me the meaning of the additional paid in capital account... |
| mattg | APIC is the amount above par value of the company's stock paid for an equity stake in the company |
| Jurrens | in this case it's just the gain (not using par... only use par values when issuing) |