CASE 15?3 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:

A) Purchase of shares at a price less than par value

B) Purchase of shares at a price greater than par value

C) Subsequent resale of treasury shares at a price less than purchase price but more than par value

D) Subsequent resale of treasury shares at a price greater than both purchase price and par value

E) Effect on net income