You are the auditor performing the year end audit of Mulcahy Corporation. Mulcahy Corporation is a U.S. publicly traded corporation based in Chicago, Illinois. Mulcahy Cororation became a publicly traded corporation in 2016 when the company issued 2,600,000 shares of it $1 par value common stock for $15 per share. In January 2021 the board of directors authorized a share repurchase program. In January 2021 the company repurchased 200,000 shares of its common stock for a price of $20 per share. In August 2021, the company decided to reissue 75,000 shares of this common stock for a price of $28 per share.

The staff accountant for Mulcahy Corporation has recognized a gain for $8 per share for the reissued stock (total gain of $600,000) in the company’s year end income statement as “Other Income”. Your manager has assigned you to perform research in the Codification to determine if this accounting treatment is correct.

Accounting Issue: What is the correct amount of the gain (if any) to be recognized in the September 30, 2021 Income Statement for the reissuance of the common stock?

Codification Reference:

Interpretation of Guidance: What is the correct amount of the gain (if any) to be recognized in the September 30, 2021 Income Statement for the reissuance of the common stock?

a. $0

b. $600,000

c. $1,000,000

d. $1,600,000

e. $2,100,000