Since Johnson Corporation repurchased the shares for purposes of resale and not for constructive retirement, they are treated as treasury shares. Gain on sale of treasury stock is treated as a capital surplus. The Controller of Johnson Co. should credit the amount in the capital surplus account. On the date of repurchase of these shares, an entry is made to reduce capital by the cost incurred by the firm to repurchase the shares.
The Controller should make the following entry:
DR Treasury Stock 700 CR: Capital Surplus/ 700 Specific reference and associated literature ASC 505-30 states the guideline for the treatment of gains on ...