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… The journal entry to record the acquisition and retirement includes debits to the CapitalStock account for the stock’s par value (or its equivalent) and the Capital in Excess of Par account (or its equivalent) for the amount of claims created in excess of the par value. The company does not increase retained earnings from the proceeds of the sale by crediting the retained earnings account. Treasury stock consists of shares issued but not outstanding. Companies cannot increase retained earnings from the sale of treasury stock. If the original issue price exceeds the amount paid, the remaining credit should be recorded in th… Apart from the above points, there is one more thing to keep in mind while doing accounting for treasury stock i.e. Treasury stock is not an asset, it is a contra-equity account that is reported as a deduction in the stockholders’ equity section of the balance sheet. Every company has an authorized amount of stock it can issue legally. When the shares are resold, the treasury stock account is credited for the cost, and the difference, which is the “gain or loss”, affects various equity accounts. An appropriation (or restriction) will result in two retained earnings accounts instead of one: (1) Retained Earnings (or Unappropriated Retained Earnings) and (2) Appropriated Retained Earnings. Treasury stock appears on a company’s balance sheet and has a normal debit balance and is deducted from a corporation’s retained earnings to determine total shareholders’ equity. When a company repurchases and reissues its stock, it debits the treasury stock contra-asset account and credits cash for the cost to repurchase the stock. $630,000 c. $610,000 d. $650,000. Confirm the treasury stock price per share. The debit is to retained earnings and the credits are to common stock and additional paid-in capital. If the company later decides to repurchase a significant number of shares outstanding from investors and it does not retire the stock and instead plans to reissue it, the stock becomes treasury stock. The company reissues the shares for $7 per share. Understanding Treasury Stock (Treasury Shares) Treasury stock is a contra equity account recorded in the shareholder's equity section of the balance sheet. Take as an example Upbeat Musical Instruments Co., which trades in the market at $30 per share. If this is management’s goal, it can choose to keep the treasury stock on its books—perhaps hoping to sell it later at a higher price—or simply retire it. It credits the cash account for $700 from the proceeds of the reissue sale. In general, an increase in treasury stock can be a good thing because it indicates that the company thinks the shares are undervalued. The transaction will cost Upbeat $120 million, which is credited to “Cash.” It debits “Treasury Stock”—which appears under the “Stockholder’s Equity” section as a deduction—for the same amount. Of this amount, the total number of shares owned by investors, including the company's officers and insiders (the owners of restricted stock), is known as the shares outstanding. This is the portion of stock currently held by all investors. Treasury Stock. The organization has to pay for its own stock with an asset (cash), thereby reducing its equity by an equivalent amount. All distributions they make to their shareholders will be dividends, because there is a large sum of E&P from which to pay dividends. However, in certain situations, the organization may benefit from limiting outside ownership. Stockholders' equity represents the difference, or residual, between assets and liabilities. Treasury shares, also know as reacquired stock, is an outstanding stock that the issuing company has bought back from the buyers. Since the account is depleted, "Treasury Stock" would still get a credit of $120 million. None of the entries associated with treasury stock transactions appear on the income statement; instead, the entries are confined to the balance sheet. There are a number of reasons why a company will try to curtail its outstanding supply of stock, either through a tender offer to current shareholders —who can accept or reject the price that's put forward — or by purchasing shares piecemeal on the open market. in either of the method, cost or par value method, treasury stock transactions do not impact retained earnings. When a company buys treasury stocks, the cost of the shares acquired is debited to a treasury stock account which appears a deduction at the end of the shareholders’ equity section. Since the account is depleted, "Treasury Stock" would still get a credit of $120 million. When a company repurchases shares, stockholders equity can be affected. Additional shares are outstanding following the stock dividend, but every shareholder maintains the same percentage of ownership. As a result, the first $170 of the "loss" goes to Paid-in Capital from Treasury Stock and the remaining $190 ($360 minus $170) is debited to Retained Earnings as shown in the following journal entry. Again, no income statement account was involved with the sale of treasury stock, even though the shares were sold for less than their cost. When a company authorizes and issues stock, the stocks bought by investors are the shares outstanding. Treasury Stock for $7,500 In above example, treasury stock purchased by Eastern company should appear in the balance sheet as follows: ... the retained earnings account is debited. 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