Question : 121. U.S. GAAP and IFRS accounting for repurchases and reissuances of : 1245764

121. U.S. GAAP and IFRS on accounting for repurchases and reissuances of treasury shares follow the principle that  
A. a corporation does not report a gain or loss on transactions involving its own shares. 
B. the economic gain, or economic loss, are a component of accounting income.
C. that views treasury stock purchases and sales as operating transactions and therefore debits Cash (for economic gains) or credits Cash (for economic losses).
D. the effects are recognized in net income, other comprehensive income and Accumulated Other Comprehensive Income, and often Retained Earnings (depending on the specific accounting method used).
E. none of the above

122. Firms use this method when management and the governing board do not intend to reissue shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares. 
A. cost method, only.
B. par value method, only.
C. constructive retirement method, only.
D. cost, par value, and constructive retirement methods.
E. none of the above

123. When a firm reacquires common shares under the Cost Method:  
A. the Treasury Stock—Common account has a debit balance and therefore reduces total shareholders’ equity.
B. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.
C. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.
D. the Treasury Stock—Common account has a credit balance and therefore reduces total shareholders’ equity.
E. the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.

124. When a firm reacquires common shares under the Par Value Method for Repurchased Shares:  
A. the Treasury Stock—Common account has a credit balance that reduces the amount of Marketable Securities reported on the balance sheet.
B. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.
C. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.
D. the Treasury Stock—Common account has a credit balance and therefore reduces total shareholders’ equity.
E. the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.

125. When a firm reacquires common shares under the Constructive Retirement Method for Repurchased Shares:  
A. the Treasury Stock—Common account has a debit balance and therefore reduces total shareholders’ equity.
B. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.
C. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.
D. the Treasury Stock—Common account has a credit balance and therefore reduces total shareholders’ equity.
E. the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.

126. When a firm uses the par value method to account for treasury shares, ________________.
The par value method requires specific identification of the date and initial proceeds of the shares repurchased, which is why firms seldom use this method.  
A. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price and the original issue price.
B. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price and the original issue price.
C. the accountant debits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price and the original issue price.
D. the accountant debits the Retained Earnings account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Common Stock account  for any difference between the repurchase price and the original issue price.
E. the accountant debits the Retained Earnings account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Common Stock account  for any difference between the repurchase price and the original issue price. 

127. In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price. If the firm uses the cost method, it debits the balance to 
A. Additional Paid-In Capital account so long as that account has a sufficiently large credit balance. To the extent the required debit exceeds the credit balance in the Additional Paid-In Capital account, the firm reduces that account to zero and debits the excess to Retained Earnings.
B. Additional Paid-In Capital.
C. Retained Earnings.
D. Net Income.
E. Accumulated Other Comprehensive Income.

128. Treasury shares arise when a corporation reacquires its own previously issued common shares. A reason for reacquiring outstanding common stock is to use the treasury shares in various option arrangements. When holders of stock options, stock rights, stock warrants, and convertible securities exercise their options, firms usually receive 
A. less cash (or market value of other consideration) than the market value of the common stock at the time.
B. a current liability on the books of the reacquiring corporation.
C. more cash (or market value of other consideration) than the market value of the common stock at the time.
D. a long-term liability on the books of the reacquiring corporation.
E. a long-term asset on the books of the reacquiring corporation.

129. Treasury stock can be defined as 
A. unissued stock, that is shares that have never been sold by the corporation.
B. designated stock, that is shares used for the specific purpose of converting preferred stock to common stock.
C. investment stock, that is shares acquired from a subsidiary company.
D. reacquired stock, that is outstanding shares purchased on the open market by the issuing corporation.
E. reacquired stock, that is outstanding shares purchased on the open market by the Treasury.

130. A firm owns 1,000 treasury shares which it acquired for $15 per share (par value $1). The firm sells 500 of the treasury shares for $20 per share. Using the cost method, what is the entry to record the sale of the treasury stock using the cost method? 
A. Cash                                                 10,000
      Common Stock-Treasury Shares                  10,000
B. Cash                                                 10,000
 Common Stock-Treasury Shares                    7,500
 Add’l Paid-in Capital-Treasury Stock            2,500
C. Cash                                                 10,000
 Common Stock-Treasury Shares                      500
 Add’l Paid-in Capital-Treasury Stock            9,500
D. Cash                                                 10,000
 Common Stock-Par                          1,000
      Common Stock-Treasury Shares                 11,000
E. Common Stock-Treasury Shares     11,000
      Cash                                                             10,000
      Common Stock-Par                                       1,000