Porter Co. began its business last year and issued 10,000 shares of common stock at $3 per share. The parvalue 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. $1,500 b. $2,000 c. $4,500 d. $20,000

Question

Barley

Business

27 September, 09:23

Porter Co. began its business last year and issued 10,000 shares of common stock at $3 per share. The parvalue 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. $1,500 b. $2,000 c. $4,500 d. $20,000

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Answers (1)

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Marco Cobb · Answer 1

The correct answer is a.

Explanation:

The total number of shares issued is 10,000.

The price of each share is $3.

The par value of the stock is $1.

500 shares are bought back at a price of $6.

These shares are reissued at a price of $10 per share.

Under the cost accounting method, the balance amount is recorded as paid-in capital related to treasury stock. This is because of the reissuing price being higher than the cost.

So, the amount to be recorded will be,

=500 * (6-3)

=1,500.