Knight Corp. holds 20,000 shares of its $10 par value common stock as treasury stock reacquired in year 1 for $240,000. On December 12, year 3, Knight reissued all 20,000 shares for $380,000. Under the cost method of accounting for treasury stock, the reissuance resulted in a credit to:

A) Common stock of $200,000.

B) Retained earnings of $140,000.

C) Gain on sale of investments of $140,000.

D) Additional paid-in capital of $140,000

Question

Sydnee Potter

Business

16 September, 05:35

Knight Corp. holds 20,000 shares of its $10 par value common stock as treasury stock reacquired in year 1 for $240,000. On December 12, year 3, Knight reissued all 20,000 shares for $380,000. Under the cost method of accounting for treasury stock, the reissuance resulted in a credit to:

A) Common stock of $200,000.

B) Retained earnings of $140,000.

C) Gain on sale of investments of $140,000.

D) Additional paid-in capital of $140,000

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Answers (1)

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Salvador Banks · Answer 1

D) Additional paid-in capital of $140,000

Explanation:

When a company uses the cost method of accounting for treasury stock, when the company purchases stock, the treasury account is debited by the full cost of the purchase. When treasury resells stock, the original debited amount is credited and any extra money received goes to the additional paid in capital account.

When Knight purchased the stock, $240,000 were debited from treasury stock account. When Knight's treasury resold the stock, $240,000 were credited to treasury stock account and $140,000 ( = $380,000 - $240,000) were credited to additional paid in capital account.