Question

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

a. As ordinary earnings shown on the income statement.
b. As paid-in capital from treasury stock transactions.
c. As an increase in the amount shown for common stock.
d. As an extraordinary item shown on the income statement.

Answer 1

b. As paid-in capital from treasury stock transactions.

Step-by-step explanation:

No gain is recognize when selling stock, as this represent contribution to the company from the stockholders. This is not a gain for the company is just a contribution.

The treasury stock will be write-off, cash will be debited for the amount received and then, any difference will be settle by debiting or crediting the paid-in capital from Treasury Stock.