How Do the Cost and Par Value Methods Differ? FAR Treasury Stock 2027
Under the cost method, debit Treasury Stock for what the company paid to buy its shares back. Under the par value method, debit Treasury Stock only for the par value of those shares. Cash follows the price paid under either method. The difference stays in equity.
By CPAPass Editorial Team · Checked November 4, 2026
One buyback, two ways to record $1,000
Original practice example. A company originally issued common shares for $10 each, with a $2 par value. It buys back 100 shares for $10 each and holds them for resale. Assume one issue price and no fees. Under the par method, the company removes the original issue premium attributable to these shares.
First write the cash line: 100 × $10 = $1,000 credit to Cash. Then cover the cash line and ask which price belongs in Treasury Stock. Under cost, it is the $10 buyback price. Under par, it is $2. The remaining $8 per share under par comes from additional paid-in capital (APIC), the amount investors originally paid above par.
Cost: $1,000 Treasury Stock (100%)
Par: $200 Treasury Stock (20%) + $800 original APIC (80%)
Indigo: Treasury Stock. Teal: APIC. Each full bar represents $1,000 of debits; $200 ÷ $1,000 = 20%. Amounts are illustrative. SEC staff on cost, par and shares held in treasury.
Buyback at cost
| Account | Debit | Credit |
|---|---|---|
| Treasury Stock | $1,000 | |
| Cash | $1,000 |
Buyback at par
| Account | Debit | Credit |
|---|---|---|
| Treasury Stock | $200 | |
| APIC, common stock | $800 | |
| Cash | $1,000 |
Check the share count: issued shares stay the same because none were formally retired. Outstanding shares fall by 100. Treasury Stock is a deduction from equity, not an investment asset. If the question specifies formal retirement, use the retirement facts and the stated equity policy. FASB, ASC 505-30-30-8, Issue 10.
Try saying each debit aloud before checking the table, then use free FAR questions to practice identifying the account before calculating its amount.
Reissue at $12: remove what you put in Treasury Stock
The company now resells all 100 shares. Debit Cash for 100 × $12 = $1,200. On the credit side, clear the carrying amount of the shares: $1,000 under cost, $200 under par. The balance goes to paid-in capital.
Reissue under cost
| Account | Debit | Credit |
|---|---|---|
| Cash | $1,200 | |
| Treasury Stock | $1,000 | |
| APIC on reissue | $200 |
Reissue under par
| Account | Debit | Credit |
|---|---|---|
| Cash | $1,200 | |
| Treasury Stock | $200 | |
| APIC on reissue | $1,000 |
Why is the par-method APIC credit $1,000? At buyback, this method already removed $800 of original APIC. Across both entries its net APIC increase is $1,000 − $800 = $200. The cost method leaves original APIC alone and credits $200 at resale. Both methods leave total equity $200 higher than before the buyback and change net income by $0. How a reissue affects paid-in capital.
Your turn: what changes if the resale price falls to $8?
Restart from the original buyback. Instead of selling at $12, the company sells all 100 shares for $8. Assume no credit balance from prior treasury-stock sales. Write both entries before opening the answer. Which method needs a debit to retained earnings?
Check my $8 reissue entries
Cost: $200 shortfall
| Account | Debit | Credit |
|---|---|---|
| Cash | $800 | |
| Retained earnings | $200 | |
| Treasury Stock | $1,000 |
Par: $600 above par
| Account | Debit | Credit |
|---|---|---|
| Cash | $800 | |
| Treasury Stock | $200 | |
| APIC on reissue | $600 |
Under cost, $1,000 − $800 = $200. A prior APIC credit from treasury transactions of the same class could absorb some or all of that debit; here its balance is zero. Under par, $800 − $200 = $600 is credited to APIC. Across buyback and resale, total equity falls by $200 either way. Neither entry books an income-statement loss. OpenStax, reissuing below cost.
The 2027 AICPA FAR Blueprint, Area II.I asks candidates to prepare equity entries. The 30% to 40% weighting applies to all of Area II, including cash, inventory and debt. It does not tell you how many treasury-stock questions you will see. If you used $8 to credit Treasury Stock, review the debit and credit lesson and redo just the carrying-amount line.
Sources and related FAR lessons
- AICPA 2027 FAR Blueprint, Area II.I
- FASB, ASC 505-30-30-8 in ASU 2025-12, Issue 10
- SEC staff comment on treasury stock vs. retirement, p. 2
- OpenStax, Principles of Accounting, section 14.2
If the question asks how treasury shares affect earnings per share, use basic vs. diluted EPS. If the shares pay for employee services, use the stock compensation expense example. For more equity topics, open the FAR study guide.