Page 533 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

Any excess of the reissue price over cost represents additional paid-in capital and is credited to Paid-In Capital—
Common (Preferred) Treasury Stock Transactions.
To illustrate, assume that on 2010 February 18, the Hillside Corporation reacquired 100 shares of its

outstanding common stock for USD 55 each. (The company's stockholders' equity consisted solely of common stock
and retained earnings.) On 2010 April 18, the company reissued 30 shares for USD 58 each. The entries to record
these events are:
2010
Feb. 18 Treasury stock – Common (100 shares x $55) (-SE) 5,500
Cash (-A) 5,500
Acquired 100 shares of treasury stock at $55.
Apr. 18 Cash (30 shares x $58) (+A) 1,740
Treasury stock – Common (30 shares x $55) (+SE) 1,650
Paid-In Capital – Common treasury stock 90
transactions (+SE)
Reissued 30 shares of treasury stock at $58; cost is
$55 per share.
When the reissue price of subsequent shares is less than the acquisition price, firms debit the difference between
cost and reissue price to Paid-In Capital—Common Treasury Stock Transactions. This account, however, never
develops a debit balance. By definition, no paid-in capital account can have a debit balance. If Hillside reissued an
additional 20 shares at USD 52 per share on 2010 June 12, the entry would be:

June 12 Cash (20 shares x $52) (+A) 1,040
Paid-In Capital – Common treasury stock transactions (-SE) 60
Treasury stock – Common (20 shares x $55) (+SE) 1,100
Reissued 20 shares of treasury stock at $52; cost is $55 per
share.
At this point, the credit balance in the Paid-In Capital—Common Treasury Stock Transactions account would be
USD 30. If the remaining 50 shares are reissued on 2010 July 16, for USD 53 per share, the entry would be:
July 16 Cash (50 shares x $53) (+A) 2,650
Paid-In Capital – Common treasury stock 30
transactions (-SE)
Retained earnings (-SE) 70
Treasury stock – Common (50 shares x $55) 2,750
(+SE)
Reissued 50 shares of treasury stock at $53; cost is
$55 per share.
Notice that Hillside has exhausted the Paid-In Capital—Common Treasury Stock Transactions account credit
balance. If more than USD 30 is debited to that account, it would develop a debit balance. Thus, the remaining USD
70 of the excess of cost over reissue price is a special distribution to the stockholders involved and is debited to the
Retained Earnings account.
Sometimes stockholders donate stock to a corporation. Since donated treasury shares have no cost to the

corporation, accountants make only a memo entry when the shares are received. The only formal entry required is
44
to debit Cash and credit the Paid-In Capital—Donations account when the stock is reissued. For example, if donated
treasury stock is sold for USD 5,000, the entry would be:
Cash (+A) 5,000
Paid-In capital – Donations (+SE) 5,000
To record the sale of donated

44 The method illustrated here is called the memo method. Other acceptable methods of accounting for donated
stock are the cost method and par value method. Intermediate accounting texts discuss these latter two

methods.

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