Answer:
Sauder Inc.
The answer is d.
The effect of the reissuance of the stock on:
1)Retained Earnings - No effect
2) Additional Paid-in Capital: No effect
Using the cost method or the par value method, there is no effect on Retained Earnings by the reissuance of stock.
Using the cost method, there is no effect on the Additional Paid-in Capital. Every treasury stock transaction is recorded in the Treasury Stock account without reference to the Additional Paid-in Capital.
Using the par value method, there is an effect on the Additional Paid-in Capital for reissuance of stock at more than the par value.
Workings:
The reissuance would be recorded as follows, using the costing method:
Debit Cash with $240,000
Credit Treasury Stock with $240,000
To record the reissuance of 20,000 shares at $12 per share.
The reissuance would be recorded as follows, using the par value method:
Debit Cash with $240,000
Credit Treasury Stock with $200,000
Credit Additional Paid-in Capital with $40,000
To record the reissuance of 20,000 shares at $12 per share.
Explanation:
Treasury Stock account is a contra account to the Common Stock account. There are two methods for recording treasury stock transactions: the costing method and the par value method.
Under the costing method, every treasury stock transaction is recorded in the Treasury Stock account. Under the par value method, the above or below par value elements of treasury stock transactions are recorded in the Additional Paid-in Capital account.
