Concept explainers
Concept introduction:
Treasury stock is the shares bought back by the company itself. A company may purchase its own shares and the shares bought back are called treasury stock. The
- For Purchase of treasury stock:
Treasury stock account is debited and cash account is credited with the cost of treasury stock purchased.
- For Sale / Reissuance of treasury stock:
Cash account is debited for the amount received on sale of treasury stock and the Treasury stock account is credited with the cost of treasury stock. For the difference in cost and sale value, Additional Paid in Capital and
Retained earnings accounts are adjusted.
To choose:
The correct treatment of the difference.
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Cornerstones of Financial Accounting - With CengageNow
- When a company buys shares of its own stock to be held in treasury, it records a reduction in: B . both assets and shareholders’ equity.arrow_forwardWhen a company buys shares of its own stock to be held in treasury, it records a reduction in: C . assets and an increase in shareholders’ equity.arrow_forward1. Treasury stock is presented on the balance sheet as an asset. a liability. a reduction to equity. a memorandum in the notes. 2. Under the cost method, when the corporation reacquires its capital stock, it assumes it will reissue rather than retire the stock. debits Treasury Stock for the price paid. credits Cash for the price paid. does all of these choicesarrow_forward
- A company issues stock dividends for several reasons: Select one: a. To reward investors b. To reduce the market price per share of its stock O c. All the options O d. To continue dividends but conserve casharrow_forwardWhich of the following statements about dividends is TRUE? A.Dividends are typically set between P20 and P30 per shareB.Dividends cannot legally be reinvested in the same company where they were earnedC.Dividends are usually paid quarterly by well established publicly traded companiesD.Dividends are earned when you sell your shares for a higher price than when you bought themarrow_forwardIf a company resells treasury stock at a loss, and that amount exceeds any balance in the treasury stock APIC account, the remaining loss is debited to: Group of answer choices Additional Paid in Capital (APIC) -Common Stock Treasury stock cannot be sold at a loss Retained earnings Loss on sale of treasury stockarrow_forward
- When treasury stock accounted for by the cost method is subsequently sold for more than its purchase price, the excess of the cash proceeds over the carrying value of the treasury stock should be recognized as: a.an increase in retained earnings b.income from continuing operations c.an ordinary gain d.an increase in additional paid-in capitalarrow_forwardWhen a stock dividend is declared and issued: Multiple Cholce total stockholders' equity does not change. total paid-in capital does not change. retained earnings is normally decreased by the par value of the shares issued in the dividend. total pald-in capital is decreased by the market value of the shares issued in the dividend.arrow_forwardWhat is the effect of purchasing treasury stock on a company’s earnings per share and return on equity, respectively? (Enter 1, 2, 3, or 4 that represents the correct answer.) No effect and no effect Decrease and decrease Increase and increase Increase and decreasearrow_forward
- The entry to record the issuance of common stock at a price above its par value includes a A) an increase to cash. B) an increase to a liability account for the difference between the price paid by the stockholders and the par value of stock. C) an increase to additional paid-in capital: common stock D) a decrease to common stockarrow_forwardWhich of the following is true if an IFRS company has a profit of $100,000? The profit will be shown on a statement of retained earnings, but not on a statement of changes in shareholders' equity. O The profit will be shown on both a statement of retained earnings and a statement of changes in shareholders' equity. O The profit will not be shown on a statement of retained earnings or on a statement of changes in shareholders' equity. O The profit will not be shown on a statement of retained earnings, but will be shown on a statement of changes in shareholders' equity. Save for Later Submit Answerarrow_forwardReturn on equity (ROE) is measured by Profit/ Average total equity Assume ROE is less than 100% and that the cash balance remains positive. State the effect the following event occurring on the reporting date would have on this ratio. EVENT: A payment to buy back a portion of shares from investors ✓ [Select] Decrease Increase No changearrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT