How are treasury stock transactions recorded under the par value method?

When using the par value method for treasury stock transactions, the correct approach is to record the treasury stock at its par value, with any excess amount paid over par recorded as additional paid-in capital. This is because treasury stock represents shares that have been repurchased by the company.

When a company buys back its own stock, the amount paid for the shares is allocated between the par value of the stock and any additional amount over that value. The par value is the nominal value assigned to each share, while additional paid-in capital reflects the extra amount that investors paid above this par value during the original issuance of the shares.

By recording the treasury stock at par value and reflecting the excess as paid-in capital, this accounting treatment maintains a clear distinction between the nominal ownership interest (par value) and the additional investment made by shareholders when the stock was originally sold. This approach also aligns with accounting principles regarding equity transactions and provides a meaningful representation of the company’s equity structure on its balance sheet.