Foreman Corporation owns 35% of George Inc. common stock, and is also considerin

Question

Foreman Corporation owns 35% of George Inc. common stock, and is also considering filing a lawsuit against George for trademark infringement. George wishes to re-acquire some of its shares owned by Foreman as treasury stock, and they negotiate a re-purchase price of $500,000 for 20,000 shares. At the same time, Foreman also agrees not to file the lawsuit against George. The fair value of George Inc. stock on the date of the re-purchase agreement is $20 per share. How should George record the transaction for the re-acquisition of its stock?

Explanation / Answer

Two methods are there to record the transaction.

A). cost method

B). Par method

A. Cost method

B. Par method

If there is a balance in paid in capital excess of par then in place of retained earnings paid in capital excess of par is debited.

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