Final answer:
A company records gains or losses on transactions with its own treasury stock, which are reflected in the shareholders' equity section of the balance sheet, not in the income statement.
Step-by-step explanation:
A company records gains or losses on transactions involving its own treasury stock when it buys back or resells its own shares. The process of accounting for treasury stock transactions may involve different methods, but the most common ones are the cost method and the par value method. Under the cost method, when treasury stocks are repurchased, they are recorded at cost as a deduction from shareholders' equity. Gains are not recognized in income; losses, if any, are recorded only after all the treasury stock purchased at a particular cost has been reissued, indicating that a 'loss' occurs if the repurchased shares are sold for less than the cost to repurchase. Conversely, if shares are sold for more than their cost, the excess is credited to additional paid-in capital, not reported as a gain in the income statement.