If a Firm Sells Treasury Stock for More Than Its

question 7

Multiple Choice

If a firm sells treasury stock for more than its cost:

• A)a gain is recognized in the income statement.
• B)retained earnings is increased.
• C)additional paid-in capital is increased.
• D)total stockholders' equity does not change.

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Definitions:

Straight-Line Method

A depreciation technique that allocates an equal proportion of the cost of an asset to each year of its useful life.

Amortize Discount

The process of gradually writing off the discount on bonds payable over the life of the bond, effectively recognizing some interest expense each period.

Bonds Payable

Long-term liabilities that represent the amount a corporation owes to bondholders.

Effective-Interest Method

A method of calculating the amortized cost of a bond and interest expense using a constant interest rate over the term of the bond.