Final answer:
Treasury stock transactions involve the buyback and reissue of a company's own shares. Journal entries differ based on whether the transactions are conducted above or below the issue price or cost. Accurate records must be maintained to adhere to GAAP.
Step-by-step explanation:
Journal Entries for Treasury Stock Transactions
When a company buys back its own shares above the issue price, it is conducting a treasury stock transaction. The company must record the purchase by debiting Treasury Stock for the repurchase amount and crediting Cash. If any excess is paid over the original issue price, it must also debit Paid-In Capital from Treasury Stock or Retained Earnings, depending on if there was a balance in the former account.
Reissuing treasury stock above cost would involve debiting Cash for the proceeds received, and crediting Treasury Stock for the cost of the shares being reissued. The excess over the cost would be credited to Paid-In Capital from Treasury Stock.
Reissuing treasury stock below cost would involve debiting Cash for the proceeds and the Paid-In Capital from Treasury Stock or Retained Earnings for the shortfall between the cost of treasury shares and the cash received. The Treasury Stock account is credited for the cost of the shares.
Each transaction affects different accounts and financial statements differently. In scenarios of buyback and reissue, companies must accurately reflect these transactions to maintain proper financial records consistent with Generally Accepted Accounting Principles (GAAP).