Treasury Stock Transactions

Why does a corporation acquire Treasury Stock?

1) Need to stock for ESOP 2) To impact the market price of the stock 3) Save on cash dividend payments (less cash outflow) 4) To increase EPS 5) To have extra shares of the stock available for purchase (acquisition) of other companies 6) Good strategy to prevent hostile take-over by another company

Sale of Treasury Shares at Cost Journal Entry

Debit: Cash Credit: Treasury Stock

Sales of Treasury Stock in Excess of Cost Journal Entry

Debit: Cash Credit: Treasury Stock Credit: Paid-in Capital in Excess of Par

Company Purchasing Shares of Outstanding Stock Journal Entry

Debit: Treasury Stock Credit: Cash (Doesn't affect Common Stock Account)

Treasury Stock Account

A contra-equity account with a debit balance; it is subtracted on the S/E section of the balance sheet to get total S/E. Shares outstanding < number of shares issued

Define Treasury Stock

A corporation's own stock that was issued then reacquired (purchased or donated), but not retired; it is held "in the treasury" until later sold, distributed, or retired. Not unissued stock

Rule for accounting Treasury Stock

Always record at cost, not par value