Homework Accounting 2 Treasure Stock
FASB Codification Case #1
Treasury Stock
Paragraph 505-30-30-3 considers that “. If the purchase of treasury shares includes the receipt of stated or unstated rights, privileges, or agreements in addition to the capital stock, only the amount representing the fair value of the treasury shares at the date the major terms of the agreement to purchase the shares are reached shall be accounted for as the cost of the shares acquired”, and further the section mentions that “the price paid in excess of the amount accounted for as the cost of treasury shares shall be attributed to the other elements of the transaction and accounted for according to their substance.” However the concept “controlling interest” lacks of enough materiality to expect any future benefits from its possession and so cannot be recognized as an independent asset. Paragraph 505-30-30-4 offers the solution to this paradigm since it states that “a block of shares representing a controlling interest will generally trade at a price in excess of market, and a large block of shares may trade at a price above or below the current market price depending on whether the buyer or seller initiates the transaction. An entity 's reacquisition of its shares in those circumstances is solely a treasury stock transaction properly accounted for at the purchase price of the treasury shares. Therefore, in the absence of the receipt of stated or unstated consideration in addition to the capital stock, the entire purchase price shall be accounted for as the cost of treasury shares.”
The Journal would state under the cost method as it follows:
Treasury stock (10,000 * 40) 400,000 Cash 400,000
The two paragraphs used for this solution are shown in the following page.
505 Equity 30 Treasury Stock 30 Initial Measurement
30-3 For example, the selling shareholder may agree to abandon certain acquisition plans, forego other planned transactions, settle litigation, settle
Treasury Stock
Paragraph 505-30-30-3 considers that “. If the purchase of treasury shares includes the receipt of stated or unstated rights, privileges, or agreements in addition to the capital stock, only the amount representing the fair value of the treasury shares at the date the major terms of the agreement to purchase the shares are reached shall be accounted for as the cost of the shares acquired”, and further the section mentions that “the price paid in excess of the amount accounted for as the cost of treasury shares shall be attributed to the other elements of the transaction and accounted for according to their substance.” However the concept “controlling interest” lacks of enough materiality to expect any future benefits from its possession and so cannot be recognized as an independent asset. Paragraph 505-30-30-4 offers the solution to this paradigm since it states that “a block of shares representing a controlling interest will generally trade at a price in excess of market, and a large block of shares may trade at a price above or below the current market price depending on whether the buyer or seller initiates the transaction. An entity 's reacquisition of its shares in those circumstances is solely a treasury stock transaction properly accounted for at the purchase price of the treasury shares. Therefore, in the absence of the receipt of stated or unstated consideration in addition to the capital stock, the entire purchase price shall be accounted for as the cost of treasury shares.”
The Journal would state under the cost method as it follows:
Treasury stock (10,000 * 40) 400,000 Cash 400,000
The two paragraphs used for this solution are shown in the following page.
505 Equity 30 Treasury Stock 30 Initial Measurement
30-3 For example, the selling shareholder may agree to abandon certain acquisition plans, forego other planned transactions, settle litigation, settle