Financial Accounting Quiz: Treasury Stock Transactions
20 questions · exam conditions
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Treasury Stock TransactionsQuestion 1 of 20

On June 1, a company with 500,000 shares of common stock issued and outstanding purchased 30,000 shares of its own stock for the treasury at $40 per share. On September 15, the company reissued 10,000 of these treasury shares for $47 per share. On November 30, the company reissued another 15,000 treasury shares for $36 per share. What is the balance in the Treasury Stock account as of December 31?

$200,000
$1,200,000
$1,080,000
$190,000
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Financial Accounting Quiz

Financial Accounting Quiz: Treasury Stock Transactions

Practice Treasury Stock Transactions in Financial Accounting 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 Treasury Stock Transactions, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

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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.

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Question 1

On June 1, a company with 500,000 shares of common stock issued and outstanding purchased 30,000 shares of its own stock for the treasury at $40 per share. On September 15, the company reissued 10,000 of these treasury shares for $47 per share. On November 30, the company reissued another 15,000 treasury shares for $36 per share. What is the balance in the Treasury Stock account as of December 31?

  1. $200,000 (correct answer)
  2. $1,200,000
  3. $1,080,000
  4. $190,000
Explanation: Correct. The Treasury Stock account is maintained at cost. The initial purchase was 30,000 \text{ shares} \times \40 = $1,200,000.Thefirstreissuancereducedtheaccountbythecostofthesharessold:. The first reissuance reduced the account by the cost of the shares sold: 10,000 \text{ shares} \times $40 = $400,000.Thesecondreissuancefurtherreducedtheaccountbythecostofthesharessold:. The second reissuance further reduced the account by the cost of the shares sold: 15,000 \text{ shares} \times $40 = $600,000.Theendingbalanceis. The ending balance is $1,200,000 - $400,000 - $600,000 = $200,000.Thisrepresentsthecostoftheremaining5,000shares. This represents the cost of the remaining 5,000 shares (5,000 \times $40)$.

Question 2

The following T-account summarizes the activity in the Treasury Stock account for Ambit Corp. during the year.

Treasury Stock (Cost Method) Beg. Bal. 100,000 | (1) 300,000 | (2) 120,000 | (3) 180,000 End. Bal. 100,000 |

All shares were purchased at a uniform cost of $30 per share.

Based on the T-account, which of the following statements is a correct interpretation of the year's events?

  1. Transaction (2) represents the sale of 4,000 treasury shares, which would be recorded with a debit to Cash. (correct answer)
  2. Transaction (1) represents the purchase of 300,000 shares for the treasury.
  3. The ending balance represents 10,000 shares held in the treasury.
  4. The total number of shares reissued during the year was 6,000.
Explanation: Correct. A credit to the Treasury Stock account under the cost method represents the reissuance of shares at their original cost. Transaction (2) is a credit of $120,000. Since the cost per share is $30, this represents the reissuance of \120,000 / $30 = 4,000$ shares. The corresponding entry would include a debit to Cash for the proceeds.

Question 3

A company reacquires 5,000 shares of its own stock for $100,000 and properly records the transaction using the cost method. If these shares were subsequently reissued for $85,000, which of the following would be part of the journal entry for the reissuance, assuming the company has a zero balance in Additional Paid-in Capital—Treasury Stock?

  1. A credit to Treasury Stock for $85,000.
  2. A debit to a loss account for $15,000.
  3. A debit to Retained Earnings for $15,000. (correct answer)
  4. A debit to Additional Paid-in Capital from Common Stock for $15,000.
Explanation: Correct. The reissuance entry is: Debit Cash for $85,000. Since there is no APIC-TS balance, the $15,000 'loss' (difference between cost of $100,000 and proceeds of $85,000) is debited to Retained Earnings. Treasury Stock is credited for its original cost of $100,000 to remove it from the books. The entry is: Dr. Cash $85,000; Dr. Retained Earnings $15,000; Cr. Treasury Stock $100,000.

Question 4

On March 1, Year 1, Corbin Company's stockholders' equity section appeared as follows:

Common stock, $10 par value, 100,000 shares authorized, 80,000 shares issued and outstanding: $800,000 Additional paid-in capital: $1,600,000 Retained earnings: $2,500,000 Total stockholders' equity: $4,900,000

On March 15, Year 1, Corbin purchased 5,000 shares of its own common stock for $25 per share. On November 3, Year 1, Corbin reissued 2,000 of these shares for $28 per share.

What is the total stockholders' equity for Corbin Company immediately after the November 3, Year 1 transaction?

  1. $4,775,000
  2. $4,831,000 (correct answer)
  3. $4,906,000
  4. $4,781,000
Explanation: Correct. The initial purchase of 5,000 treasury shares at $25 per share decreased stockholders' equity by 5,000 \times \25 = $125,000.Thenewtotalequitywas. The new total equity was $4,900,000 - $125,000 = $4,775,000.Thereissuanceof2,000sharesat$28pershareincreasedstockholders′equitybythecashproceedsof. The reissuance of 2,000 shares at $28 per share increased stockholders' equity by the cash proceeds of 2,000 \times $28 = $56,000.Therefore,thefinalstockholders′equityis. Therefore, the final stockholders' equity is $4,775,000 + $56,000 = $4,831,000$.

Question 5

The stockholders' equity section of Newport Co. on December 31, Year 1, is presented below:

Common stock, $2 par value, 200,000 shares authorized, 150,000 shares issued: $300,000 Additional paid-in capital: $1,200,000 Retained earnings: $950,000 Less: Treasury stock (10,000 shares, at cost): ($180,000) Total stockholders' equity: $2,270,000

On January 15, Year 2, Newport reissued 5,000 shares of its treasury stock for $20 per share. What is the carrying value of total stockholders' equity immediately after this transaction?

  1. $2,370,000 (correct answer)
  2. $2,380,000
  3. $2,280,000
  4. $2,270,000
Explanation: Correct. The reissuance of treasury stock increases total stockholders' equity by the amount of cash proceeds received. The proceeds are 5,000 \text{ shares} \times \20/\text{share} = $100,000.Thenewtotalstockholders′equityisthepreviousbalanceplustheproceeds:. The new total stockholders' equity is the previous balance plus the proceeds: $2,270,000 + $100,000 = $2,370,000$. The gain or loss on the reissuance affects components within equity (APIC-TS or Retained Earnings) but does not change the total impact, which is simply the cash inflow.

Question 6

Consolidated Corp. has 100,000 shares of $10 par common stock outstanding. The company repurchases 5,000 shares at $25 per share when the market price is $27 per share. Two months later, the company reissues 3,000 of these treasury shares at $30 per share. Using the cost method, what is the total effect on stockholders' equity from these two transactions?

  1. Decrease of $110,000
  2. Decrease of $35,000 (correct answer)
  3. Decrease of $40,000
  4. Decrease of $125,000
Explanation: Under the cost method: (1) Purchase of 5,000 shares at $25 = $125,000 decrease to stockholders' equity. (2) Reissuance of 3,000 shares at $30: removes $75,000 from treasury stock (3,000 × $25) and adds $90,000 cash, creating 15,000paid−incapitalfromtreasurystocktransactions.Neteffect:−15,000 paid-in capital from treasury stock transactions. Net effect: -125,000 + 90,000=−90,000 = -35,000. Choice A incorrectly subtracts the full reissuance proceeds. Choice C uses only the net treasury shares remaining (2,000 × $20). Choice D ignores the reissuance entirely.

Question 7

A company's records show the following for the current year:

  • Balance in Additional Paid-in Capital—Treasury Stock at Jan 1: $12,000
  • Mar 10: Purchased 3,000 shares of its own stock at $25 per share.
  • Jul 22: Reissued 1,000 of these shares at $30 per share.
  • Nov 5: Reissued 1,500 of these shares at $18 per share.

What is the total debit to Retained Earnings resulting from the November 5 treasury stock transaction?

  1. $10,500
  2. $0 (correct answer)
  3. $1,500
  4. $2,500
Explanation: Correct. The APIC-TS account had a beginning balance of $12,000. The July 22 transaction added 1,000 \times (\30 - $25) = $5,000tothisbalance,makingthetotalAPIC−TSavailableto this balance, making the total APIC-TS available17,000. The 'loss' on the November 5 transaction was (1,500 \times ($25 - $18) = $10,500). Since the available balance in APIC-TS ($17,000) is greater than the 'loss' ($10,500), the entire amount is absorbed by APIC-TS. There is no debit to Retained Earnings.

Question 8

On May 1, Year 3, a company purchased 800 shares of its treasury stock for $24,000. On October 31, Year 3, it reissued 500 of these shares in exchange for a parcel of land with an appraised fair value of $17,500. The cost per share of the treasury stock was $30. The journal entry to record the exchange for land should include a:

  1. Credit to Gain on Exchange of Treasury Stock for $2,500.
  2. Credit to Additional Paid-in Capital—Treasury Stock for $2,500. (correct answer)
  3. Debit to Land for $15,000.
  4. Credit to Treasury Stock for $15,000.
Explanation: Correct. The land should be recorded at its fair value of $17,500. The cost of the 500 treasury shares reissued is 500 × $30 = $15,000. The journal entry is: Debit Land $17,500, Credit Treasury Stock $15,000, and Credit Additional Paid-in Capital—Treasury Stock $2,500. Treasury stock transactions do not result in gains or losses on the income statement.

Question 9

Paxon Corp. repurchased 1,000 shares of its $1 par value common stock for $15,000. It later reissued all 1,000 shares for $19,000. Under the cost method, what is the impact of the reissuance transaction on Paxon's Additional Paid-in Capital?

  1. $18,000 increase
  2. $4,000 increase (correct answer)
  3. $1,000 increase
  4. $0
Explanation: Correct. The reissuance is recorded by debiting Cash for $19,000, crediting Treasury Stock for its cost of $15,000, and crediting Additional Paid-in Capital—Treasury Stock for the difference of $4,000. This increases total Additional Paid-in Capital by $4,000.

Question 10

At the beginning of the year, Bristol Corp. had 200,000 shares of $1 par value common stock issued and outstanding. The stockholders' equity included additional paid-in capital of $1,500,000 and retained earnings of $800,000. On February 1, Bristol purchased 10,000 shares of its stock for $12 per share. On August 10, it reissued 4,000 of these shares for $9 per share. Bristol had no previous treasury stock transactions.

What is the balance of Additional Paid-in Capital on August 11, assuming it was solely from the original stock issuance prior to the treasury stock transactions?

  1. $1,488,000
  2. $1,500,000 (correct answer)
  3. $1,512,000
  4. $1,497,000
Explanation: Correct. Under the cost method, transactions in treasury stock are recorded in separate equity accounts: Treasury Stock and Additional Paid-in Capital—Treasury Stock. The reissuance below cost, with no prior 'gains' on treasury stock, is debited to Retained Earnings. It does not affect the original Additional Paid-in Capital account from the issuance of stock. Therefore, the balance remains $1,500,000.

Question 11

Quincy Inc. engaged in two treasury stock transactions. First, it acquired 2,000 shares of its $1 par value stock at $20 per share. Second, it reissued 1,200 of these shares at $25 per share. Which of the following correctly describes the net effect of these two transactions on Quincy's financial statements?

  1. A net decrease in stockholders' equity of $10,000 and an increase in net income of $6,000.
  2. A net decrease in stockholders' equity of $10,000 and no effect on net income. (correct answer)
  3. A net decrease in stockholders' equity of $40,000 and no effect on net income.
  4. A net increase in stockholders' equity of $30,000 and an increase in net income of $6,000.
Explanation: Correct. The purchase of treasury stock decreased equity by 2,000 \times \20 = $40,000.Thereissuanceincreasedequitybytheproceedsof. The reissuance increased equity by the proceeds of 1,200 \times $25 = $30,000.Theneteffectontotalstockholders′equityisadecreaseof. The net effect on total stockholders' equity is a decrease of $40,000 - $30,000 = $10,000$. Transactions involving a company's own stock are capital transactions and do not affect net income. The 'gain' on reissuance is credited to APIC-TS.

Question 12

A company purchases 1,000 shares of its own stock at $50 per share and later sells 500 of these shares at $42 per share. The company had no prior treasury stock transactions. The journal entry for the sale will decrease Retained Earnings by:

  1. $4,000 (correct answer)
  2. $8,000
  3. $0
  4. $21,000
Explanation: Correct. The cost of the shares sold is 500 \times \50 = $25,000.Theproceedsfromthesaleare. The proceeds from the sale are 500 \times $42 = $21,000.Thedifferenceisa′loss′of. The difference is a 'loss' of $25,000 - $21,000 = $4,000$. Since there were no prior treasury stock transactions, the Additional Paid-in Capital—Treasury Stock account has a zero balance. Therefore, the entire $4,000 'loss' must be debited to (decrease) Retained Earnings.

Question 13

Under the cost method, when treasury stock is sold for less than its cost and the Additional Paid-in Capital—Treasury Stock account is not sufficient to absorb the entire 'loss', the excess is debited to Retained Earnings. What is the primary justification for this treatment?

  1. The excess represents a realized loss that must be recognized in the period of the transaction.
  2. The treatment is required to maintain the historical cost principle for treasury stock.
  3. The treatment ensures that treasury stock transactions do not result in a net credit to retained earnings over time.
  4. The excess is considered a distribution to shareholders, effectively a liquidating dividend that reduces retained earnings. (correct answer)
Explanation: Correct. Transactions in a company's own stock are viewed as capital transactions, not income-generating activities. A reissuance below cost is seen as a return of capital to the selling shareholder. Any 'loss' first reduces paid-in capital from previous treasury stock transactions. Any excess beyond that is treated as a reduction of the corporation's earned capital, i.e., retained earnings, conceptually similar to a dividend distribution.

Question 14

At December 31, Year 1, Jenson Corp. had 400,000 shares of common stock issued and outstanding. Its stockholders' equity totaled $6,000,000. On January 5, Year 2, Jenson purchased 20,000 shares of its common stock for the treasury at $25 per share.

What was Jenson's book value per share immediately after the treasury stock purchase?

  1. $15.00
  2. $13.10
  3. $14.47 (correct answer)
  4. $15.79
Explanation: Correct. First, calculate the new total stockholders' equity. Initial equity was $6,000,000. The purchase cost was 20,000 \times \25 = $500,000.Newequityis. New equity is $6,000,000 - $500,000 = $5,500,000.Second,calculatethenewnumberofsharesoutstanding.Initialshareswere400,000.Afterthepurchase,itis. Second, calculate the new number of shares outstanding. Initial shares were 400,000. After the purchase, it is 400,000 - 20,000 = 380,000.Bookvaluepershareis. Book value per share is $5,500,000 / 380,000 \text{ shares} = $14.47$.

Question 15

In Year 1, Roro Corp. issued 10,000 shares of $10 par value common stock for $15 per share. In Year 2, Roro purchased 1,000 shares of its stock for $20 per share. In Year 3, Roro reissued 600 of the treasury shares for $18 per share. Roro had no other equity transactions.

What is the balance in Roro's Additional Paid-in Capital from Common Stock account at the end of Year 3?

  1. $50,000 (correct answer)
  2. $48,800
  3. $44,000
  4. $48,000
Explanation: Correct. The APIC from common stock is created at the original issuance and is not affected by treasury stock transactions under the cost method. The original issuance was 10,000 shares at $15, with a par of $10. The APIC per share was \15 - $10 = $5.TotalAPICfromcommonstockis. Total APIC from common stock is 10,000 \text{ shares} \times $5/\text{share} = $50,000$. The 'loss' on the treasury stock sale affects Retained Earnings (since there was no APIC-TS), not the original APIC from common stock.

Question 16

A corporation purchased 10,000 shares of its own common stock at $20 per share and later sold 8,000 of the treasury shares at $28 per share. On the statement of cash flows, how would the net effect of these two transactions be reported?

  1. Net cash inflow from financing activities of $24,000.
  2. Cash outflow for investing activities of $200,000 and cash inflow from financing activities of $224,000.
  3. Net cash inflow from operating activities of $64,000.
  4. Cash outflow for financing activities of $200,000 and cash inflow from financing activities of $224,000. (correct answer)
Explanation: Correct. Transactions involving a company's own equity, including treasury stock, are classified as financing activities. The purchase of treasury stock is a cash outflow of 10,000 \times \20 = $200,000.Thesaleoftreasurystockisacashinflowof. The sale of treasury stock is a cash inflow of 8,000 \times $28 = $224,000$. Both of these should be reported separately (or netted, but the components are key) in the financing activities section.

Question 17

At the start of the year, a company had a $5,000 credit balance in its Additional Paid-in Capital—Treasury Stock account. During the year, it reissued a block of 2,000 treasury shares, which had a total cost of $60,000, for $26 per share.

What is the balance in the Additional Paid-in Capital—Treasury Stock account after this transaction?

  1. $3,000 debit
  2. $3,000 credit
  3. $5,000 credit
  4. $0 (correct answer)
Explanation: Correct. The cost per share is \60,000 / 2,000 = $30.Thesharesweresoldfor$26,a′loss′of$4pershare.Thetotal′loss′is. The shares were sold for $26, a 'loss' of $4 per share. The total 'loss' is 2,000 \times $4 = $8,000.Thecompanyhada$5,000creditbalanceinAPIC−TS.Thisbalanceisusedtoabsorbthefirst$5,000ofthe′loss′,reducingtheAPIC−TSbalancetozero.Theremaining. The company had a $5,000 credit balance in APIC-TS. This balance is used to absorb the first $5,000 of the 'loss', reducing the APIC-TS balance to zero. The remaining $8,000 - $5,000 = $3,000$ is debited to Retained Earnings.

Question 18

Mesa Corp. holds 10,000 shares of treasury stock that was purchased at $16 per share. The company has a credit balance of $30,000 in Additional Paid-in Capital—Treasury Stock. What is the maximum number of these treasury shares Mesa can reissue at $12 per share without having to reduce its Retained Earnings?

  1. 1,875 shares
  2. 10,000 shares
  3. 2,500 shares
  4. 7,500 shares (correct answer)
Explanation: Correct. The 'loss' per share upon reissuance at $12 is \16 - $12 = $4.Thecompanyhasa$30,000balanceinAPIC−TSavailabletoabsorbthis′loss′.Themaximum′loss′thatcanbeabsorbedis$30,000.Therefore,themaximumnumberofsharesthatcanbesoldata$4′loss′pershareis. The company has a $30,000 balance in APIC-TS available to absorb this 'loss'. The maximum 'loss' that can be absorbed is $30,000. Therefore, the maximum number of shares that can be sold at a $4 'loss' per share is $30,000 / $4/\text{share} = 7,500$ shares.

Question 19

A company has 1,000,000 shares of common stock issued. It holds 50,000 shares in its treasury. The company declares a cash dividend of $0.50 per share. What is the total amount of the cash dividend that will be paid?

  1. $500,000
  2. $525,000
  3. $475,000 (correct answer)
  4. $25,000
Explanation: Correct. Dividends are paid on shares that are outstanding, not on shares held in the treasury. The number of outstanding shares is the number of issued shares minus the number of treasury shares. Outstanding shares = 1,000,000−50,000=950,0001,000,000 - 50,000 = 950,000. Total dividend payment = 950,000 \text{ shares} \times \0.50/\text{share} = $475,000$.

Question 20

Meridian Corp. uses the cost method for treasury stock. During 2024, the company had the following transactions: Repurchased 2,000 shares at $45 per share on March 1; Reissued 800 shares at $50 per share on July 15; Reissued 600 shares at $40 per share on November 30. What journal entry is required for the November 30 transaction?

  1. Debit Cash $24,000, Debit Paid-in Capital from Treasury Stock $3,000, Credit Treasury Stock $27,000 (correct answer)
  2. Debit Cash $24,000, Debit Retained Earnings $3,000, Credit Treasury Stock $27,000
  3. Debit Cash $24,000, Credit Treasury Stock $24,000
  4. Debit Cash $24,000, Debit Additional Paid-in Capital $3,000, Credit Treasury Stock $27,000
Explanation: The November 30 transaction reissues 600 shares with treasury cost of $45 each for $40 each. Cash received: 600 × $40 = $24,000. Treasury stock reduced: 600 × $45 = $27,000. The $3,000 difference is a loss that should first be charged to Paid-in Capital from Treasury Stock Transactions (which has a 4,000creditfromtheJulytransaction:800×(4,000 credit from the July transaction: 800 × (50-$45)). Choice B incorrectly charges retained earnings when paid-in capital is available. Choice C ignores the cost difference. Choice D uses a non-specific account name.