Question

Waterway industries purchased its own par value stock on lamaary 1.2020 for $20400 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $10500 The 59900 difference hetween the cost and sales price should be recorded as a deduction from

a.additional paid in capital without regard as to whether or not there have been previogs net "cains" from sales of the sime cias of stock included therein.
b.retained earnings.
c.net income
addibional paid-in capital to the extent that previous net "gains" from sales of the same d.class of stock are included thereinc, otherwise, from retained earnings.

Answer 1

The $59,900 difference between the cost and sales price of the stock should be recorded as a deduction from retained earnings.

Step-by-step explanation:

The $59,900 difference between the cost and sales price should be recorded as a deduction from retained earnings. This is because the treasury stock account is a component of retained earnings, and any gains from sales of the same class of stock are added to retained earnings. Therefore, the difference should be deducted from retained earnings unless there are previous net gains from sales of the same class of stock included in Additional Paid-in Capital, in which case it should be deducted from Additional Paid-in Capital to the extent that previous net gains are included.