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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
When treasury stock is purchased for cash at more than its par value, what is the effect on total shareholders’ equity under each of the following methods?
Identify the effect on total shareholders’ equity under cost method and par value method, when treasury stock purchased for cash at more than its par value.
Cost method: Under this method, at the time of reacquiring the treasury stock, it will be debited for the amount paid. At the time of reissuance, treasury stock will be credited and cash will be debited with the proceeds received. Credit the additional paid-in capital for the difference amount.
Par value method: Under this method, at the time of reacquiring the treasury stock, it will be debited with par value reissuance of treasury stock accounted for in a manner similar to that of issue of common stock and preferred stock.
a) Treasury stock is a contra equity account. Purchasing treasury stock at more than its par value will decrease the total shareholders’ equity in both the methods...
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