Holiday Corp. holds 10,000 shares of its $10 par value common stock as treasury stock reacquired in 1994 for $120,000. On December 12, 1996, Holiday reissued all 10,000 shares for $190,000. Under the cost method of accounting for treasury stock, the reissuance resulted in increasing
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A. B. C. D. E.Explanation
Under the cost method, treasury stock is decreased by $120,000, cash is increased by $190,000 and the difference (which is like a gain) is reported as an increase in additional paid-in capital. Accounting rules do not allow a firm to record a gain or loss when it buys back treasury stock because the transaction is viewed as an equity transaction.