CPA Financial Accounting and Reporting Far Quiz: Account For Treasury Stock Transactions
20 questions · exam conditions
0:00
Account For Treasury Stock TransactionsQuestion 1 of 20

A company repurchased 1,000 shares at $40 each (cost method) and later reissues all 1,000 shares at $55 per share. What is the journal entry to record the reissuance?

Debit Cash $55,000; Credit Treasury Stock $40,000; Credit APIC-Treasury Stock $15,000.
Debit Cash $55,000; Credit Common Stock $1,000; Credit APIC $54,000.
Debit Cash $55,000; Credit Treasury Stock $55,000.
Debit Cash $55,000; Credit Gain on Sale of Treasury Stock $15,000; Credit Treasury Stock $40,000.
← Back to quizzes

CPA Financial Accounting and Reporting Far Quiz

CPA Financial Accounting and Reporting Far Quiz: Account For Treasury Stock Transactions

Practice Account For Treasury Stock Transactions in CPA Financial Accounting and Reporting Far with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Account For Treasury Stock Transactions, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Financial Accounting and Reporting Far.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A company repurchased 1,000 shares at $40 each (cost method) and later reissues all 1,000 shares at $55 per share. What is the journal entry to record the reissuance?

  1. Debit Cash $55,000; Credit Treasury Stock $40,000; Credit APIC-Treasury Stock $15,000. (correct answer)
  2. Debit Cash $55,000; Credit Common Stock $1,000; Credit APIC $54,000.
  3. Debit Cash $55,000; Credit Treasury Stock $55,000.
  4. Debit Cash $55,000; Credit Gain on Sale of Treasury Stock $15,000; Credit Treasury Stock $40,000.
Explanation: When treasury stock is reissued above cost under the cost method, Cash is debited for proceeds received, Treasury Stock is credited at cost, and the excess goes to APIC-Treasury Stock. No gain is recognized - treasury stock transactions are equity transactions. Answer A is correct. Answer B treats the reissuance as a new stock issuance rather than a treasury stock transaction. Answer C credits Treasury Stock at the reissuance price rather than cost. Answer D records a gain, which is not permitted for equity transactions.

Question 2

Which of the following statements correctly describes the effect of a treasury stock repurchase on earnings per share?

  1. EPS increases because the repurchase reduces the weighted-average shares outstanding in the denominator. (correct answer)
  2. EPS is unaffected because treasury stock is not a liability.
  3. EPS decreases because net income is reduced by the repurchase cost.
  4. EPS decreases because total equity is reduced, lowering book value per share.
Explanation: Treasury stock repurchases reduce the number of shares outstanding, which decreases the weighted-average shares outstanding used in the EPS denominator. With the same net income spread over fewer shares, EPS increases. Answer A is correct. Answer B is incorrect - while the repurchase is not a liability, it does affect EPS through the denominator. Answer C is incorrect - the repurchase does not reduce net income; it is an equity transaction with no income statement effect. Answer D confuses book value per share with EPS; reducing total equity lowers book value per share but does not decrease EPS.

Question 3

A company repurchased 4,000 shares at $20 per share (cost method). It later donates 500 of these treasury shares to a charitable organization. The fair value of the shares on the donation date is $22 per share. How should the donation be recorded?

  1. Debit Charitable Contribution Expense $10,000; Credit Treasury Stock $10,000.
  2. Debit Charitable Contribution Expense $11,000; Credit Treasury Stock $10,000; Credit Gain $1,000.
  3. Debit Charitable Contribution Expense $11,000; Credit Treasury Stock $10,000; Credit APIC-Treasury Stock $1,000. (correct answer)
  4. No entry; donated shares are removed from treasury stock with no expense.
Explanation: When treasury shares are donated, the donation is recorded at the fair value of the shares given ($22 x 500 = 11,000),whichistheamountofthecharitablecontributionexpense.TreasuryStockisremovedatcost(11,000), which is the amount of the charitable contribution expense. Treasury Stock is removed at cost (20 x 500 = $10,000), and the $1,000 excess of fair value over cost is credited to APIC-Treasury Stock. No gain is recorded. Answer C is correct. Answer A records the expense at cost rather than fair value. Answer B records a gain rather than crediting APIC. Answer D omits the required expense recognition.

Question 4

A company uses the cost method for treasury stock. It repurchases 1,000 shares at $30 each. The original issuance data is: $2 par, $28 APIC per share. Which of the following correctly states the balance sheet impact at repurchase?

  1. Treasury Stock increases by $30,000; Cash decreases by $30,000; no change to Common Stock or APIC. (correct answer)
  2. Common Stock decreases by $2,000; APIC decreases by $28,000; Cash decreases by $30,000.
  3. Treasury Stock increases by $2,000; APIC decreases by $28,000; Cash decreases by $30,000.
  4. Retained Earnings decreases by $30,000; Cash decreases by $30,000.
Explanation: Under the cost method, the repurchase is recorded entirely as Treasury Stock at cost. Common Stock and APIC are not adjusted at repurchase - those accounts are only affected if the shares are later retired or reissued. Cash decreases by $30,000 and Treasury Stock (contra-equity) increases by $30,000. Answer A is correct. Answer B describes the par value method retirement entry. Answer C incorrectly adjusts APIC at repurchase under the cost method. Answer D charges Retained Earnings, which is not the cost method entry.

Question 5

Which of the following correctly describes the effect of formally retiring treasury stock on total stockholders' equity, assuming retirement cost equals the original repurchase cost?

  1. Total stockholders' equity increases because the contra-equity Treasury Stock account is eliminated.
  2. Total stockholders' equity decreases by the par value of the retired shares.
  3. Total stockholders' equity is unchanged; retirement reclassifies amounts within equity. (correct answer)
  4. Total stockholders' equity increases by the APIC eliminated in the retirement entry.
Explanation: Retiring treasury stock eliminates the Treasury Stock contra-equity balance and reduces Common Stock and APIC by corresponding amounts. Because the reduction in positive equity accounts equals the elimination of the contra-equity balance, total stockholders' equity is unchanged - it is a reclassification within equity components. Answer C is correct. Answer A incorrectly implies equity increases when a contra-equity account is removed. Answer B focuses only on par value. Answer D incorrectly suggests equity increases when APIC is debited (reduced) in the retirement entry.

Question 6

Which of the following transactions would decrease both total assets and total stockholders' equity by the same amount?

  1. Declaring a cash dividend.
  2. Repurchasing treasury stock for cash. (correct answer)
  3. Issuing a stock dividend.
  4. Completing a stock split.
Explanation: Repurchasing treasury stock for cash reduces Cash (an asset) and increases Treasury Stock (a contra-equity account), thereby reducing both total assets and total stockholders' equity by the repurchase price. Answer B is correct. Declaring a cash dividend (A) creates a liability (Dividends Payable) and reduces equity, but assets are not yet reduced until paid. A stock dividend (C) reclassifies within equity with no asset change. A stock split (D) has no effect on assets or total equity.

Question 7

A company repurchases 3,000 shares at $25 per share using the cost method. It subsequently retires 1,000 of those treasury shares. The original issuance price was 18pershare(18 per share (1 par, $17 APIC). What journal entry records the retirement?

  1. Debit Common Stock $1,000; Credit Treasury Stock $25,000; Credit Retained Earnings $24,000.
  2. Debit Treasury Stock $25,000; Credit Common Stock $1,000; Credit APIC $24,000.
  3. Debit Common Stock $1,000; Debit APIC $17,000; Debit APIC-Treasury Stock $7,000; Credit Treasury Stock $25,000.
  4. Debit Common Stock $1,000; Debit APIC $17,000; Debit Retained Earnings $7,000; Credit Treasury Stock $25,000. (correct answer)
Explanation: When treasury stock is retired under the cost method: credit Treasury Stock at cost (25,000).DebitCommonStockatpar(25,000). Debit Common Stock at par (1,000), debit APIC at original premium (17,000).Repurchasecost(17,000). Repurchase cost (25,000) exceeds original issuance price ($18,000) by $7,000, charged to Retained Earnings. Answer D is correct. Answer A credits Retained Earnings rather than debiting it. Answer B reverses debits and credits on Treasury Stock. Answer C debits APIC-Treasury Stock for the excess rather than Retained Earnings - APIC-Treasury Stock is only used for differences arising from reissuances, not retirements.

Question 8

A company repurchased treasury stock at $50 per share (cost method) and reissues the shares at $38 per share. There is no existing APIC-Treasury Stock balance. What account absorbs the $12 per share deficiency?

  1. Loss on Sale of Treasury Stock, recognized in the income statement.
  2. Additional Paid-In Capital from original issuance.
  3. Common Stock at par value.
  4. Retained Earnings. (correct answer)
Explanation: When treasury stock is reissued below cost and no APIC-Treasury Stock balance exists to absorb the deficiency, the excess of cost over reissuance price is charged to Retained Earnings. No loss is recognized in the income statement for treasury stock transactions. Answer D is correct. Answer A records an income statement loss, which is not permitted for transactions in a company's own stock. Answer B uses APIC from original issuances, which is only used after APIC-Treasury Stock is exhausted - and APIC-Treasury Stock is the first account used, not APIC from original issuances. Answer C debits Common Stock at par, which is not affected by treasury stock reissuances under the cost method.

Question 9

A company has the following equity balances: Common Stock $10,000; APIC $90,000; Retained Earnings $150,000. It repurchases 500 shares at $60 per share using the cost method. What is total stockholders' equity after the repurchase?

  1. $220,000 (correct answer)
  2. $250,000
  3. $190,000
  4. $280,000
Explanation: Total equity before repurchase = $10,000 + $90,000 + $150,000 = $250,000. Treasury stock repurchased = 500 x $60 = $30,000. Treasury stock is a contra-equity account, reducing total equity. Total equity after = $250,000 - $30,000 = $220,000. Answer A is correct. Answer B is the pre-repurchase balance. Answer C deducts $60,000 (twice the repurchase amount). Answer D adds treasury stock to equity rather than subtracting.

Question 10

A company has 200,000 shares authorized, 120,000 issued, and 15,000 held as treasury stock. A 10% stock dividend is declared. How many new shares are issued as the stock dividend?

  1. 20,000 shares
  2. 10,500 shares (correct answer)
  3. 12,000 shares
  4. 15,000 shares
Explanation: Stock dividends are issued on shares outstanding, not shares issued or authorized. Shares outstanding = 120,000 - 15,000 = 105,000. Stock dividend shares = 105,000 x 10% = 10,500. Answer B is correct. Answer A applies 10% to issued shares (120,000). Answer C applies 10% to a different base. Answer D incorrectly equals the treasury share count.

Question 11

A company repurchases 2,500 shares at $60 per share using the cost method. The APIC-Treasury Stock account has a zero balance. The shares are reissued at $50 per share. What is the journal entry for the reissuance?

  1. Debit Cash $125,000; Credit Treasury Stock $125,000.
  2. Debit Cash $125,000; Debit APIC-Treasury Stock $25,000; Credit Treasury Stock $150,000.
  3. Debit Cash $125,000; Debit Retained Earnings $25,000; Credit Treasury Stock $150,000. (correct answer)
  4. Debit Cash $125,000; Debit Loss on Treasury Stock $25,000; Credit Treasury Stock $150,000.
Explanation: Reissuance proceeds = 2,500 x $50 = $125,000. Treasury Stock at cost = 2,500 x $60 = $150,000. Deficiency = $25,000. With no APIC-Treasury Stock balance available, the full deficiency is charged to Retained Earnings. Entry: Debit Cash $125,000, Debit Retained Earnings $25,000, Credit Treasury Stock $150,000. Answer C is correct. Answer A credits Treasury Stock at reissuance price rather than cost. Answer B debits APIC-Treasury Stock when the balance is zero. Answer D records an income statement loss, which is not permitted.

Question 12

A company (cost method) repurchases 1,000 shares at $70 each. APIC-Treasury Stock has a $3,000 credit balance. The shares are reissued at $65 each. What is the effect on Retained Earnings from the reissuance?

  1. Retained Earnings decreases by $5,000.
  2. Retained Earnings decreases by $5,000 offset by a gain.
  3. Retained Earnings decreases by $2,000. (correct answer)
  4. Retained Earnings is not affected.
Explanation: Reissuance proceeds = $65,000. Cost of treasury stock = $70,000. Deficiency = $5,000. Available APIC-Treasury Stock = $3,000, which absorbs the first $3,000. Remaining deficiency charged to Retained Earnings = $5,000 - $3,000 = $2,000. Entry: Debit Cash $65,000, Debit APIC-Treasury Stock $3,000, Debit Retained Earnings $2,000, Credit Treasury Stock $70,000. Answer C is correct. Answer A charges the full $5,000 to Retained Earnings, ignoring available APIC-Treasury Stock. Answer B incorrectly records a gain. Answer D ignores the deficiency entirely.

Question 13

A company's board of directors votes to formally retire 2,000 treasury shares that were repurchased at $40 each under the cost method. The shares had an original issuance price of 35(35 (5 par, $30 APIC). Which accounts are debited in the retirement entry?

  1. Treasury Stock $80,000 only.
  2. Common Stock $10,000 and APIC $60,000.
  3. Common Stock $10,000, APIC $60,000, and Gain $10,000.
  4. Common Stock $10,000, APIC $60,000, and Retained Earnings $10,000. (correct answer)
Explanation: Retirement of treasury stock (cost method): Remove Treasury Stock at cost (credit $80,000). Debit Common Stock at par: 2,000 x $5 = $10,000. Debit APIC at original premium: 2,000 x $30 = $60,000. Cost exceeds original issuance price by: $80,000 - $70,000 = $10,000. This excess is charged to Retained Earnings. Answer D is correct. Answer A debits Treasury Stock rather than crediting it. Answer B omits the $10,000 excess charge. Answer C records a gain rather than charging Retained Earnings - gains are never recognized on treasury stock retirement.

Question 14

A company repurchases 500 shares at $45 per share (cost method) and later reissues 200 shares at $38 per share. The APIC-Treasury Stock account has a balance of $2,000 before the reissuance. What is the journal entry for the reissuance?

  1. Debit Cash $7,600; Debit APIC-Treasury Stock $1,400; Credit Treasury Stock $9,000. (correct answer)
  2. Debit Cash $7,600; Debit Retained Earnings $1,400; Credit Treasury Stock $9,000.
  3. Debit Cash $7,600; Debit APIC-Treasury Stock 2,000;DebitRetainedEarnings(2,000; Debit Retained Earnings (600); Credit Treasury Stock $9,000.
  4. Debit Cash $7,600; Credit Treasury Stock $7,600.
Explanation: Reissuance price = 200 x $38 = $7,600. Cost of treasury shares reissued = 200 x $45 = $9,000. Deficiency = $9,000 - $7,600 = $1,400. APIC-Treasury Stock balance of $2,000 is sufficient to absorb the full $1,400 deficiency. Entry: Debit Cash $7,600, Debit APIC-Treasury Stock $1,400, Credit Treasury Stock $9,000. Answer A is correct. Answer B charges Retained Earnings before exhausting APIC-Treasury Stock. Answer C debits the full APIC-Treasury Stock balance unnecessarily. Answer D credits Treasury Stock at reissuance price rather than cost.

Question 15

A company repurchased 800 shares at $55 per share (cost method). It reissues 400 shares at $62 per share, then later reissues the remaining 400 shares at $48 per share. What is the net balance in APIC-Treasury Stock after both reissuances, assuming APIC-Treasury Stock had a zero beginning balance?

  1. $2,800 credit balance
  2. $1,400 credit balance
  3. $0 balance (correct answer)
  4. $2,800 debit balance
Explanation: First reissuance (400 shares at $62): proceeds $24,800 - cost $22,000 = $2,800 excess. Credit APIC-Treasury Stock $2,800. Second reissuance (400 shares at $48): proceeds $19,200 - cost $22,000 = $2,800 deficiency. Debit APIC-Treasury Stock $2,800 (sufficient to cover deficiency). Remaining APIC-Treasury Stock = $2,800 - $2,800 = $0. Answer C is correct. Answer A reflects only the first reissuance. Answer B incorrectly nets the amounts. Answer D results in a debit balance, which cannot occur - once APIC-Treasury Stock reaches zero, further deficiencies go to Retained Earnings.

Question 16

A company has 100,000 shares authorized, 60,000 shares issued, and 8,000 shares held as treasury stock. The board authorizes a cash dividend of $2 per share. What is the total dividend declared?

  1. $200,000
  2. $120,000
  3. $104,000 (correct answer)
  4. $116,000
Explanation: Dividends are paid on outstanding shares only, not treasury shares. Shares outstanding = 60,000 issued - 8,000 treasury = 52,000. Total dividend = 52,000 x $2 = $104,000. Answer C is correct. Answer A applies $2 to all authorized shares. Answer B applies $2 to all issued shares without deducting treasury shares. Answer D applies $2 to 58,000 shares, which does not correspond to any correct share count.

Question 17

Which of the following correctly states the effect of treasury stock transactions on net income?

  1. Gains on treasury stock reissuance above cost increase net income.
  2. Treasury stock transactions have no effect on net income; they are equity transactions. (correct answer)
  3. Losses on treasury stock reissuance below cost decrease net income.
  4. Treasury stock repurchases create a loss equal to the premium paid over book value.
Explanation: Transactions in a company's own equity instruments - including repurchase and reissuance of treasury stock - do not produce gains or losses in the income statement. All differences between cost and reissuance price are recorded in equity accounts (APIC-Treasury Stock or Retained Earnings). Answer B is correct. Answers A and C both record income statement effects, which are prohibited for treasury stock transactions. Answer D treats the repurchase premium as a loss, which is also incorrect.

Question 18

A company repurchases 2,000 shares of its own $1 par value common stock at $35 per share using the cost method. What is the journal entry to record the repurchase?

  1. Debit Common Stock $2,000; Debit APIC $68,000; Credit Cash $70,000.
  2. Debit Treasury Stock $2,000; Credit Cash $2,000.
  3. Debit Retained Earnings $70,000; Credit Cash $70,000.
  4. Debit Treasury Stock $70,000; Credit Cash $70,000. (correct answer)
Explanation: Under the cost method, treasury stock is recorded at the full repurchase price. The entry is: Debit Treasury Stock $70,000 (2,000 x $35); Credit Cash $70,000. No allocation between par value and APIC is made at repurchase under the cost method. Answer D is correct. Answer A describes the par value method. Answer B records only the par value. Answer C debits Retained Earnings, which is incorrect for the cost method repurchase entry.

Question 19

A company repurchases treasury stock at $48 per share (cost method) and later reissues the shares at $48 per share exactly. What is the journal entry for the reissuance?

  1. Debit Cash $48 per share; Credit Treasury Stock $48 per share. (correct answer)
  2. Debit Cash $48 per share; Credit Retained Earnings $48 per share.
  3. Debit Cash $48 per share; Credit Common Stock $48 per share.
  4. No entry required since there is no gain or loss.
Explanation: When treasury stock is reissued at exactly its cost, Cash is debited and Treasury Stock is credited at cost. There is no excess or deficiency, so no APIC or Retained Earnings entry is needed. Answer A is correct. Answer B credits Retained Earnings rather than Treasury Stock. Answer C credits Common Stock, which is not affected by treasury stock reissuances under the cost method. Answer D incorrectly omits the entry entirely - the transaction still needs to be recorded even when there is no gain or loss.

Question 20

Delta Inc. has 50,000 shares of $5 par common stock outstanding. The company repurchased 3,000 shares at $18 per share when the market price was $18. Later, Delta reissued 1,000 of these treasury shares at $15 per share. If Delta follows the cost method and had no previous treasury stock transactions, what journal entry should be recorded for the reissuance?

  1. Dr. Cash $15,000, Dr. Additional Paid-in Capital from Treasury Stock $3,000, Cr. Treasury Stock $18,000
  2. Dr. Cash $15,000, Dr. Retained Earnings $3,000, Cr. Treasury Stock $18,000 (correct answer)
  3. Dr. Cash $15,000, Dr. Loss on Treasury Stock $3,000, Cr. Treasury Stock $18,000
  4. Dr. Cash $15,000, Cr. Common Stock $5,000, Cr. Additional Paid-in Capital $10,000
Explanation: Under the cost method, when treasury stock is reissued below cost and there's no existing Additional Paid-in Capital from Treasury Stock, the deficit is charged to Retained Earnings. The reissuance is at $15 vs. cost of $18, creating a $3 per share deficit. Cash received: 1,000 × $15 = $15,000. Treasury stock reduction: 1,000 × $18 = $18,000. Deficit to Retained Earnings: 1,000 × $3 = $3,000. Choice A incorrectly debits APIC when none exists. Choice C treats this as a loss rather than an equity transaction. Choice D incorrectly treats this as a new stock issuance.