The manner of disposing of this discount depends upon the provisions made by the directors in respect to the creating of working capital.

If their resolution provides that the fund maintained for working capital shall be only such an amount as may be realized from the sale of treasury stock, the discount is disposed of by the following entry:

Working capital15,000
Subscriptions to treasury stock 15,000
Discount on 30,000 treasury stock sold.

Suppose, however, that the directors have provided by resolution for the maintaining of a working capital of $50,000. In that case the liability for the full $50,000 must remain on the books until such time as other provision is made. The entry would then be:

Bonus$15,000
Subscriptions to treasury stock $15,000

The discount is, to all intents, a bonus given to the purchasers, and if, as frequently happens, purchasers are promised a bonus of a share of stock for every share purchased, it would be proper to make the following entry in the first place.

Subscriptions to treasury stock15,000
Bonus15,000
Treasury stock 30,000
Sold 30,000 treasury stock at 50% of face value.

In any dividend distribution the purchasers are entitled to draw dividends on the face value of their stock, since it was issued to them as full paid. It would be manifestly unfair to charge the discount or bonus against profits for the current year, and it is customary to spread it over a period of several years, charging off a certain per cent each year. The bonus account is, in the meantime, carried on the books as an asset, and belongs in the class known as fictitious assets.

Treasury stock is an asset, its real value being the market value of the stock represented. In the event of liquidation of the company, treasury stock would off-set the liability on account of capital stock. When all of the treasury stock is sold the account closes itself; or if it is issued to stockholders in the form of stock dividends, it is closed into profit and loss.