Porter Corp. purchased its own par value stock on January 1, 2010 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

Porter Corp. purchased its own par value stock on January 1, 2010 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

a. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.
b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.
c. retained earnings.
d. net income.


Answer: additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

a. As ordinary earnings shown on the income statement.
b. As paid-in capital from treasury stock transactions.
c. As an increase in the amount shown for common stock.
d. As an extraordinary item shown on the income statement.


Answer: As paid-in capital from treasury stock transactions

In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2010, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2010, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.


Answer: decreased total stockholders' equity.

Treasury shares are

Treasury shares are

a. shares held as an investment by the treasurer of the corporation.
b. shares held as an investment of the corporation.
c. issued and outstanding shares.
d. issued but not outstanding shares.


Answer: issued but not outstanding shares

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value.
b. Paid-in capital in excess of par for the purchase price.
c. Treasury stock for the purchase price.
d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.


Answer: Treasury stock for the purchase price.

"Gains" on sales of treasury stock (using the cost method) should be credited to

"Gains" on sales of treasury stock (using the cost method) should be credited to

a. paid-in capital from treasury stock.
b. capital stock.
c. retained earnings.
d. other income.


Answer: paid-in capital from treasury stock.

A "secret reserve" will be created if

A "secret reserve" will be created if

a. inadequate depreciation is charged to income.
b. a capital expenditure is charged to expense.
c. liabilities are understated.
d. stockholders' equity is overstated.


Answer: a capital expenditure is charged to expense.