Subsequent Resale of Stock
My Computer Company can decide to resell or retire the treasury stock at any time. In our example, 1,000 shares of treasury stock are later sold at a price of $5 share. The journal entry to record this transaction is as follows:
Dr. Cash $5,0000
........................Cr. Treasury Stock $4,000
........................Cr. Paid-in Capital from Treasury Stock $1,000
To record the sale of 1,000 shares of treasury stock at $5 per share.
Click on the image below to view how the Stockholders' Equity section will look after this transaction has been recorded.
The important point is that the sale did not result in income which might be misunderstood by the user of a financial statement. If the subsequent resale was at a lower price, for example $2 per share, the difference reduces Paid-in Capital from Treasury Stock.
Images are courtesy of Marjory Pilley
Needles, Jr. Belverd E., and Marian Powers. Financial Accounting. 9 ed. Boston: Houghton Mifflin Company, 2007. Print.