For numerous reasons, a corporation may reacquire (buy back) shares of its own shares. When a company purchases treasury shares, it usually accounts for the shares using the cost method.

Instructions

Explain how a company would account for each of the following:

1. Purchase of shares at a price less than par value.

2. Subsequent resale of treasury shares at a price less than purchase price, but more than par value.

3. Subsequent resale of treasury shares at a price greater than both purchase price and par value.

4. Effect on net income.