When a Firm Reacquires Common Shares Under the Par Value

question 154

Multiple Choice

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.

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Definitions:

Prepaid Expense

An expense that has been paid in advance and is recorded as an asset until it is actually incurred.