Bob Smith, The accountant of ABC Ltd. has been tasked with redeeming part of the shares outstanding for his corporation. Bob is unsure how he should charge the cost of the redemption to shareholder's equity accounts.

Required:

Explain to Bob how the cost should be charged to shareholders equity accounts. Please provide specific responses for the following circumstances:

1) When the cost is lower than the average price per share.

2) When the cost is higher than the average price per share.