Par Value Method of Treasury Stock

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on November 16, 2021

The par value method is based on the assumption that the acquisition of treasury stock is essentially a permanent reduction in stockholders’ equity. The entries used in the method are thus structured as if the shares have been retired.

At the time of acquisition, the Treasury Stock account is debited for the par value of the shares, and Capital in Excess of Par is debited for the original amount paid in excess of par at issuance. Cash is credited for the acquisition price.

If the cost is less than the original issue price, Additional Paid-In Capital should be credited. If the cost exceeds the original issue price, Additional Paid-In Capital or Retained Earnings should be debited.

When the shares are reissued, Cash is debited for the proceeds and Treasury Stock is credited for the par value of the shares. Any additional credit is recorded in Capital in Excess of Par, just as if the stock is being issued for the first time.

This entry reflects the position that treasury stock is in substance the same as any other unissued shares. If the capital stock in the previous example had an initial issue price of $25 per share, the following entries would be recorded for the three events:
Treasury Stock Par Value Method Journal Entries
Under the par value method, the Treasury Stock account should be viewed as contra to the Capital Stock account. Its balance represents only the claims arising from the original investment of par value that were satisfied by distributing assets.

Disclosure of the number of shares can be accomplished as follows:
Journal Entry to Disclose Shares
If more than one class of stock exists, separate disclosures should be made for the treasury stock of each class.

Entries for Stock Without Par Value

For no-par stock with a stated value, the entries for the purchase and sale of treasury shares are the same as those described above.

However, if the stock does not have a par or stated value, the original full amount paid in substitutes for par value in the entry for acquisitions, as shown below (again assuming an original issue price of $25 per share):
Journal Entry For Treasury Stock
Upon reissuance, any amount received in excess of the carrying amount of the treasury shares must be credited to the Capital Stock account. This is because no other paid-in capital account exists for no-par-value stock.

Furthermore, this practice produces the same account balances that would be achieved if the stock had been retired and new shares issued. The following reissuance entries would be recorded for the example:
Reissuance Entry 1
Reissuance Entry 2

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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