Under the cost method of accounting for treasury stock transactions, when the proceeds from a sale are greater than the cost, the excess over cost is treated as a(n)
A) increase in Other Expenses from Treasury Stock Sales
B) increase in Additional Paid-in Capital from Treasury Stock
C) increase in a contra-stockholders' equity account
D) None of these choices

Question

Quizplus · Accepted Answer

When the proceeds from a sale of treasury stock are greater than the cost, the excess over cost is treated as an increase in Additional Paid-in Capital from Treasury Stock. This account reflects the amount of capital that shareholders have contributed to the company above the par or stated value of the stock. The excess over cost is not recognized as income, but rather as an increase in the amount of capital that the company has received. A and C are incorrect because they do not reflect the appropriate treatment of the excess over cost. D is incorrect because there is a correct answer to this question.

Under the Cost Method of Accounting for Treasury Stock Transactions