Final answer:
The retirement of stock query involves understanding how companies reacquire and remove previously sold shares from the market using cost and par value methods, which is generally taught in college-level accounting courses.
Step-by-step explanation:
The question involves retirement of stock and accounting for such transactions using two different methods: the cost method and the par value method. When a company retires stock, it is reacquiring shares previously sold and removing them from the market. In the scenario provided, 200 shares of common stock (CS) with a par value of $10, originally sold for $15, are reacquired for $20. Under the cost method, the treasury stock is debited for the reacquisition cost, and under the par value method, the stock’s par value is removed from the accounts and any excess is debited to a paid-in capital account. This part of the course typically falls under intermediate or advanced accounting, which is usually covered in college-level courses.
The retirement of stock can be calculated using two methods: the cost method and the par value method.
1. The cost method:
In this method, the retirement of stock is calculated based on the cost of acquiring the stock.
For example, if 200 shares of stock were originally sold for $15 and reacquired for $20, the retirement cost would be 200 x $20 = $4000.
2. The par value method:
In this method, the retirement of stock is calculated based on the par value of the stock.
If the par value of the stock is $10 per share, then the retirement cost would be 200 x $10 = $2000.