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Treasury shares that originally cost $45 per share are resold at $60 per share for 200 shares. What account is credited for the difference, and by how much?
APaid-in capital from treasury sale, $3,000
BA gain on sale of treasury shares, $3,000
COrdinary share premium account, $9,000
DRetained earnings account, $12,000
Answer & Solution
Correct answer: A. Paid-in capital from treasury sale, $3,000
1. Treasury shares are credited at their $45 cost: $200 \times \$45 = \$9{,}000$.
2. Cash received = $200 \times \$60 = \$12{,}000$.
3. Excess over cost = $\$12{,}000 − \$9{,}000 = \$3{,}000$.
4. Resale above cost is never a gain or income; it credits paid-in capital from sale of treasury shares for $3,000.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.4 "Treasury Stock", p.252_
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