Perez Co. previously acquired 10,000 shares of its own stock ($1 par) in the open market for $10 per share. This year the firm reissued all of these shares at $12 per share. Which of the following will occur as a result of the treasury shares being reissued:

a. Additional Paid in Capital will increase by $20,000.
b. A gain of $20,000 will be included on the income statement.
c. Treasury stock will decrease by $120,000
d. Common Stock will increase by $10,000

a. Additional Paid in Capital will increase by $20,000.

Explanation:

Treasury stock is the share of the company issued earlier and bought-back. It can be reissued and cancelled by the company.

Journal Entry for Re-acquirement of shares

Dr.  Treasury Stock (10,000 x $10 )   $100,000

Cr.  Cash                                              $100,000

Re -issuance of Share

Dr.  Cash (10,000 x $12 )                    $120,000

Cr.  Additional Paid-in Capital           $20,000

Cr.  Treasury Stock (10,000 x $10 )   $100,000

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