Baker co. issued 100,000 shares of common stock in the current year. on october 1, baker repurchased 20,000 shares of its common stock on the open market for $50.00 per share. at that date, the stock's par value was $1.00 and the average issue price was $40.00 per share. baker uses the cost method for treasury stock transactions. on december 1, baker reissued the stock for $60.00 per share. what amount should baker report as treasury stock gain at december 31? (a) $200,000(b) $0(c) $980,000(d) $400,000

The correct answer to the following question is option B) $0

Explanation:

Here the Baker co would report treasury stock gain as $0 because when a company incurred losses or gains from the treasury stock transactions, that gain or loss would not be recorded in the income statement, rather it would be adjusted in the shareholders equity account.

In this question, Baker co is earning gain on treasury stock as they repurchased treasury stock for $10,00,000 and sold them for $12,00,000 (20,000 x $60 ) and this amount would be credited to APIC (treasury stock ). Here APIC means the additional paid in capital, which represents the value of share capital which is stated above par value and its accounting treatment would come under Shareholders equity on the balance sheet of the company.

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