Question

When a corporation purchases its own stock using the cost method and resells it later at a higher price, a credit entry is made to which account(s) in the later sale? "CHEGG"

Answer 1

Answer: A. Both treasury stock and paid in capital from treasury stock

Explanation:

When using the cost method, the stock is recorded at cost which means that the stock repurchased (Treasury Stock) is recorded at cost of buying it. If it is sold for a higher amount than it was bought for, the amount it was bought for will be credited from the Treasury account.

The remaining amount will be credited to the Additional Paid-In Capital account which is used to record variations between the amount equity was bought for versus the amount it was sold for.

Had the repurchased stock been sold for less, the Additional Paid In Capital Account would have been debited.