In year 1, Rona Corp. issued 5,000 shares of $10 par value
common stock for $100 per share. In year 3, Rona reacquired
2,000 of its shares at $150 per share from the estate of one of its
deceased officers and immediately canceled these 2,000 shares.
Rona uses the cost method in accounting for its treasury stock
transactions. In connection with the retirement of these 2,000
shares, Rona should debit

Additional paid-in capital
Retained earnings

(c) When accounting for the retirement of stock, common
stock and additional paid-in capital are removed from the
books based on the original issuance of the stock. Cash is credited
for the cost of the shares. Any difference is debited to retained
earnings or credited to paid-in capital from retirement.
The entry in this case is
Common stock 20,000 (2,000 × $10)
APIC 180,000 (2,000 × $90)
Retained earnings 100,000 (2,000 × $50)
Cash 300,000
Therefore, APIC should be debited for $180,000 and retained
earnings should be debited for $100,000.