Final answer:
When reselling treasury stock at a higher price than its cost, the journal entry includes a debit to Treasury Stock, a credit to Cash, and a credit to Paid-in Capital from Treasury Stock Transactions. It is similar to an investor realizing a capital gain on the sale of an asset for a higher price than the purchase price.
Step-by-step explanation:
When a company resells its treasury stock at a price higher than the original cost, the journal entry made would include certain credits and debits reflecting this transaction. If the resale price is higher than the average cost of the treasury shares, the company realizes a gain. This is similar to a financial investor buying a share for a lower price and selling it at a higher price, resulting in a capital gain.
The correct journal entry would involve:
- A debit to Treasury Stock for the cost of the shares being reissued.
- A credit to Cash for the total proceeds from the sale.
- A credit to Paid-in Capital from Treasury Stock Transactions for the amount that exceeds the average cost of the treasury shares, representing the gain on the sale.
Therefore, the entries would include a debit to Treasury Stock (C), a credit to Cash (B), and a credit to Paid-in Capital from Treasury Stock Transactions (A). A debit to Common Stock (D) would not be appropriate in this situation because the transaction involves treasury stock, not the issuance of new common stock.