How to record the sale of treasury stock
Overview
Treasury stock is a contra account to the stockholders’ equity and its normal balance is on the debit side. Likewise, when the company records the sale of treasury stock, it will credit the treasury stock in order to remove it from the balance sheet after the sale.
The company may sell treasury stock at the cost, above the cost, or below the cost. Likewise, the recording of the sale of treasury stock can be different from one transaction to another.
Record the sale of treasury stock
Sale price equals cost
The company can record the sale of treasury stock with the journal entry of debiting the cash account and crediting the treasury stock account when the sale price equals its cost.
| Account | Debit | Credit |
|---|---|---|
| Cash | 000 | |
| Treasury stock | 000 |
Opposite to the purchase, the sale of treasury stock increases both total assets and total equity. Likewise, in this journal entry, both total assets and total equity increase by the same amount of the cash the company receives from the sale transaction.
Sale price is higher than cost
If the sale price of treasury stock is more than its cost, the company needs to credit the exceed amount into paid-in capital from treasury stock as in the journal entry below:
| Account | Debit | Credit |
|---|---|---|
| Cash | 000 | |
| Paid-in capital from treasury stock | 000 | |
| Treasury stock | 000 |
Sale price is lower than cost
On the other hand, if the sale price of treasury stock is less than its cost, the company needs to debit the excess amount into paid-in capital from treasury stock.
| Account | Debit | Credit |
|---|---|---|
| Cash | 000 | |
| Paid-in capital from treasury stock | 000 | |
| Treasury stock | 000 |
However, sometimes, the balance in the paid-in capital from treasury stock may not sufficient to cover the excess cost over the reissue price. In this case, the company debit retained earnings for the remaining amount.
| Account | Debit | Credit |
|---|---|---|
| Cash | 000 | |
| Paid-in capital from treasury stock | 000 | |
| Retained earnings | 000 | |
| Treasury stock | 000 |
Sale of treasury stock example
For example, on May 12, the company ABC sells 1,000 shares of treasury stock for $30 per share. These treasury shares cost $20 per share when the company purchased them previously.
In this case, the company ABC can record the sale of treasury stock with the amount of $30,000 (1,000 x30) with the journal entry below:
| Account | Debit | Credit |
|---|---|---|
| Cash | 30,000 | |
| Paid-in capital from treasury stock | 10,000 | |
| Treasury stock | 20,000 |
Example 2:
For example, on May 12, the company XYZ sells 1,000 shares of treasury stock for $80 per share. The company XYZ previously bought these 1,000 shares of treasury stock on the market at the price of $100 per share.
In this case, the company XYZ can record the sale of treasury stock on May 12 as below:
| Account | Debit | Credit |
|---|---|---|
| Cash | 80,000 | |
| Paid-in capital from treasury stock | 20,000 | |
| Treasury stock | 100,000 |