In Some Cases, Particularly When the Reissue of Treasury Stock

question 133

Multiple Choice

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.

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Definitions:

Volatile Stock

Shares of a company that exhibit significant fluctuations in price over short periods of time due to various factors.

Risky Stock

Shares of a company with a high level of risk, often due to volatility, uncertainty, or both, potentially leading to high returns or losses.

Diversified Portfolio

An investment portfolio constructed with a mix of assets to reduce exposure to risk associated with any single asset or asset class.

Market Risk

The risk of losses in investments due to factors that affect the entire market, such as economic shifts or political events.