Final answer:
To record reissuing treasury stock below cost, debit treasury stock and Additional Paid-In Capital if necessary, and credit cash, reflecting the loss from reissuance.
Step-by-step explanation:
The journal entry to record reissuing treasury stock at a price below the cost of treasury stock includes a debit to treasury stock for the amount at which the treasury shares were originally recorded, a debit to Additional Paid-In Capital if there is a balance available from previous transactions, and a credit to cash for the amount of cash received. The debit to Additional Paid-In Capital should not reduce this account below zero; if the reissuance is at a price so low that it would require a reduction below zero, the remainder of the loss is charged to Retained Earnings. This entry reflects the loss on reissuance of the shares because the company is receiving less cash than the shares were originally sold for.
The benefit of issuing stock is significant for companies as it allows firms to increase their visibility in financial markets and obtain financial capital for expansion. The process, however, can be costly owing to the need for investment bankers, attorneys, and adherence to regulatory requirements such as those from the Securities and Exchange Commission (SEC).