153 Accounting for Treasury Stock

For numerous reasons, a corporation may reacquire shares of its own capital stock. When a company purchases treasury stock, it has two options of how to account for the shares: the cost method and the par value method.

Required:

Compare and contrast the cost method and the par value method for each of the following:

1. Purchase of shares at a price less than par value
2. Purchase of shares at a price greater than par value
3. Subsequent resale of treasury shares at a price less than purchase price but more than par value
4. Subsequent resale of treasury shares at a price greater than both purchase price and par value
5. Effect on net income