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Treasury shares costing $45 per share are resold at $40 per share for 200 shares, with a $1,000 balance already in paid-in capital from sale of treasury shares. How is the $5-per-share shortfall recorded?
ADebit loss on sale of treasury, $1,000
BDebit paid-in capital from treasury, $1,000
CDebit retained earnings account, $9,000
DCredit treasury shares account, $8,000
Answer & Solution
Correct answer: B. Debit paid-in capital from treasury, $1,000
1. Cash received = $200 \times \$40 = \$8{,}000$.
2. Treasury shares credited at cost = $200 \times \$45 = \$9{,}000$.
3. Shortfall = $\$9{,}000 − \$8{,}000 = \$1{,}000$ (the $5 \times 200 below cost).
4. A below-cost resale is not a loss; it is debited to paid-in capital from sale of treasury shares for $1,000.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.4 "Treasury Stock", p.252_
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