Treasury stock is an outstanding share which was repurchased by the corporation. Treasury stock can be reported using the cost or par value method. The mostly commonly used method between the two is the cost method. The cost method only requires firms to record The par value method requires a company to record the cost of repurchased stock at the value that they assure to shareholders is backed. The cost method requires companies to record treasury stock at price it was purchased at.
Recording the transaction of acquiring treasury stock below par value under the cost method would require a journal entry consisting of a debit to Treasury Stock and a Credit to cash, which ignores the loss or gain contributed. Using the par value method for the same situation requires a debit to Treasury Stock and Additional Paid in Capital –Treasury Stock and a credit to cash. The Additional Paid in capital account is used to account for the difference in the par values.
If the stock is repurchased at price above par value the entry under cost method would remain the same. While the entry under the par value method would be a debit to treasury stock and a credit to Additional paid in capital-Treasury Stock and cash. Whether the stock was purchased under or above par value affects the recording of the resale of the treasury stock.
If the stock is sold at a price below the purchase price but above par value it would be recorded as a credit to treasury stock for the purchase price and the excess above the purchase price is first debited to additional paid in capital and any remainder is then debited to retained