Record Treasury Stock

Topics: Stock market, Stock, Share Pages: 2 (354 words) Published: July 20, 2013
Record Treasury Stock Transactions
Treasury stock is reacquired stock bought back by the issuing company. A few reasons why treasury stock is acquired are to reissue the shares to the officers and employees under bonus and stock compensation. It is also a way to let the stock market know that management considers it to be underpriced as a way to increase its market value. Another reason is to have additional shares available for use in the acquisition of other companies. It reduces the shares outstanding and increases earnings per share. The last reason is to alleviate the company of disgruntled investors. To account for treasury stock companies use the cost method. The cost method uses the cost of the shares purchased to value the treasury stock. The company debits treasury stock for the price paid to reacquire the shares. When the company disposes of the shares, it credits to Treasury Stock the same amount paid to reacquire the shares. For example, if a company acquires 2,000 shares of its stock at $2 per share the entry would be recorded as follow  | Debit| Credit|

Treasury Stock| 4,000|  |
Cash|  | 4,000|

When treasury stock is sold or retired, the entry is recorded differently when sold above the cost than when it is sold below cost. For example, if a company sells for $5 per share the 1,000 of its treasury stock, previously acquired at $2 per share the entry would be recorded as follows  | Debit| Credit|

Cash| 5,000|  |
Treasury Stock|  | 2,000|
Paid-in Capital from Treasury Stock| | 3,000|

When treasury stock is sold below cost it debits to Paid-in Capital from Treasury Stock the excess of cost over selling price. For example, if the company sells an additional 500 shares of treasury stock at $1 per share the entry would be recorded as follow  | Debit| Credit|

Cash| 500|  |
Paid-in Capital from Treasury Stock| 500|  |
Treasury Stock| | 1,000|

Reference

Kimmel, D. D., Weygandt, J. J., &...
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