Can anyone help with understanding the logic on a recent Research Sim from the Wiley Test Bank? Specificly can someone translate into “English” what the correct answer is saying?
The company made open-market purchases of its own common stock with the intent to reissue the shares in the future. It is anticipated that the market price of the stock will be in excess of the purchase price when the stock is reissued. Identify the section of professional standards that provides guidance as to how the company should account for the excess of the market price at the time of reissuance over the purchase price of the common stock.
My answer:
505-30-30-2 An allocation of repurchase price to other elements of the repurchase transaction may be required if an entity purchases treasury shares at a stated price significantly in excess of the current market price of the shares. An agreement to repurchase shares from a shareholder may also involve the receipt or payment of consideration in exchange for stated or unstated rights or privileges that shall be identified to properly allocate the repurchase price.
Correct Answer:
505-30-30-10 Gains on sales of treasury stock not previously accounted for as constructively retired shall be credited to additional paid-in capital; losses may be charged to additional paid-in capital to the extent that previous net gains from sales or retirements of the same class of stock are included therein, otherwise to retained earnings.
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