Target Inc. arranged to purchase a large block of its common stock from a major shareholder. The total number of shares purchased is 10,000 and these shares are to be held as treasury shares. Target Inc. uses the cost method to account for treasury shares. This shareholder had a controlling interest before the transaction. After the transaction this shareholder no longer has a controlling interest. Given these facts, to induce the shareholder to sell the block of stock Target Inc. was forced to pay an amount in excess of the current market price of the stock. Target Inc. paid the shareholder $40 per share when the market price was $30 per share.

Question 

How should Target Inc. account for the purchase of this treasury stock?

a. Provide a brief written description of the proper accounting treatment, including how the extra $10 paid per share is recorded.

b. Prepare a formal journal entry to record the treasury stock transaction.

c. Identify the specific paragraph of the FASB Codification which addresses this issue.

Answer rating: 100% (QA)

Answer 1 Under the cost method the purchase of treasury stock is recorded by de... View the full answer