Question

Porter Co. began its business last year and issued 10,000 shares of common stock at $3 per share. The par value of the stock is $1 per share. During January of the current year, Porter bought back 500 shares at $6 per share, which were reported by Porter as treasury stock. The treasury stock shares were reissued later in the current year at $10 per share. Porter used the cost method to account for its equity transactions. What amount should Porter report as paid-in capital related to its treasury stock transactions on its balance sheet for the current year?

A. $ 4,500
B. $ 2,000
C. $ 1,500
D. $20,000

Answer 1

Answer:

The correct option is B) $2000

Explanation:

Assuming under the cost method, for accounting of equity transactions, the amount that will be recorded as paid in capital which is related to its treasury stock transactions will include the transaction of reissuance of treasury stock , and not the original issuance of treasury stock. Here the reissue price is higher than cost , so the amount that will be recorded is -

REISSUE PRICE - COST PRICE X NUMBER OF SHARES

( $10 - $6 ) x 500

= $4 x 500

= $2000