{"id":817,"date":"2015-05-13T17:44:47","date_gmt":"2015-05-13T17:44:47","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&p=817"},"modified":"2015-06-02T17:11:08","modified_gmt":"2015-06-02T17:11:08","slug":"journal-entries-for-issuing-and-acquiring-stock","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/chapter\/journal-entries-for-issuing-and-acquiring-stock\/","title":{"raw":"Treasury Stock","rendered":"Treasury Stock"},"content":{"raw":"
\r\n

Treasury stock<\/strong><\/h4>\r\n

Treasury stock is the corporation\u2019s own capital stock that it has issued and then reacquired; this stock has not been canceled and is legally available for reissuance. Because it has been issued, we cannot classify treasury stock as unissued stock.\u00a0 Instead, treasury stock reduces shares outstanding but does not change shares issued.<\/p>\r\nA corporation may reacquire its own capital stock as treasury stock to: (1) cancel and retire the stock; (2) reissue the stock later at a higher price; (3) reduce the shares outstanding and thereby increase earnings per share; or (4) issue the stock to employees. If the intent of reacquisition is cancellation and retirement, the treasury shares exist only until they are retired and canceled by a formal reduction of corporate capital.\r\n\r\nFor dividend or voting purposes, most state laws consider treasury stock as issued but not outstanding, since the shares are no longer in the possession of stockholders. Also, accountants do not consider treasury shares outstanding in calculating earnings per share.\r\n\r\nWhen firms reacquire treasury stock, they record the stock at cost as a debit in a stockholders\u2019 equity account called Treasury Stock.[3]<\/a> They credit reissuances to the Treasury Stock account at the original cost of paid to reaquire the stock (not the par or stated value). Thus, the Treasury Stock account is debited at cost when shares are acquired and credited at cost when these shares are sold. Any excess of the reissue price over cost represents additional paid-in capital and is credited to Paid-In Capital\u2014Common (Preferred) Treasury Stock.<\/strong>\r\n\r\nhttps:\/\/youtu.be\/MusfMph9xEQ\r\n\r\nTo further illustrate, assume that on\u00a0February 18, the Hillside Corporation reacquired 100 shares of its outstanding common stock for\u00a0$55 each. On\u00a0April 18, the company reissued 30 shares of its treasury stock for\u00a0\u00a0$58 each. The entries to record these events are:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nAccount<\/td>\r\nDebit<\/td>\r\nCredit<\/td>\r\n<\/tr>\r\n
Feb 18<\/td>\r\nTreasury stock \u2013 Common (100 shares x $55)<\/td>\r\n5,500<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0 Cash<\/td>\r\n<\/td>\r\n5,500<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0Acquired 100 shares of treasury stock at $55.<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Apr. 18<\/td>\r\nCash (30 shares x $58)<\/td>\r\n1,740<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0 Treasury stock \u2013 Common (30 shares x $55)<\/td>\r\n<\/td>\r\n1,650<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0 Paid-In Capital \u2013 treasury stock (1,740 price received - 1,650 our cost)<\/td>\r\n<\/td>\r\n90<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0Reissued 30 shares of treasury stock at $58; cost is $55 per share.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWhen the reissue price of subsequent shares is less than the acquisition price, firms debit the difference between cost and reissue price to Paid-In Capital\u00a0--\u00a0Treasury Stock. This account, however, never develops a debit balance. By definition, no paid-in capital account can have a debit balance. If Hillside reissued an additional 20 shares at\u00a0 $52 per share on\u00a0 June 12, the entry would be:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nAccount<\/strong><\/td>\r\nDebit<\/strong><\/td>\r\nCredit<\/strong><\/td>\r\n<\/tr>\r\n
Jun 12<\/td>\r\nCash (20 shares x $52)<\/td>\r\n1,040<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPaid-In Capital \u2013 Treasury stock (1,100 our cost - 1,040 received)<\/td>\r\n60<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0 Treasury stock \u2013 Common (20 shares x $55)<\/td>\r\n<\/td>\r\n1,100<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0Reissued 20 shares of treasury stock at $52; cost is $55 per share.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nAt this point, the credit balance in the Paid-In Capital\u2014Common Treasury Stock Transactions account would be\u00a0$30\u00a0 ($90 credit from Apr 18 - $60 debit from Jun 12)\u00a0. If the remaining 50 shares are reissued on\u00a0 July 16, for\u00a0 $53 per share, the entry would be:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/td>\r\nAccount<\/strong><\/td>\r\nDebit<\/strong><\/td>\r\nCredit<\/strong><\/td>\r\n<\/tr>\r\n
Jul 16<\/td>\r\nCash (50 shares x $53 price received)<\/td>\r\n2,650<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPaid-In Capital \u2013 Treasury Stock ($30 balance remaining)<\/td>\r\n30<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nRetained earnings (to balance entry $2,750 cost - $2,650 cash - $30 paid in capital balance)<\/td>\r\n70<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0 Treasury stock \u2013 Common (50 shares x $55 cost)<\/td>\r\n<\/td>\r\n2,750<\/td>\r\n<\/tr>\r\n
<\/td>\r\n\u00a0Reissued 50 shares of treasury stock at $53; cost is $55 per share.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNotice that Hillside has exhausted the Paid-In Capital\u2014Common Treasury Stock Transactions account credit balance. If more than\u00a0 $30 is debited to that account, it would develop a debit balance. Thus, the remaining\u00a0 $70 of the excess of cost over reissue price is a special distribution to the stockholders involved and is debited to the Retained Earnings account.\r\n\r\nWhen treasury stock is\u00a0shown on a balance sheet date, it customarily appears at cost, as a deduction from the sum of total paid-in capital and retained earnings.\r\n<\/div>\r\nhttp:\/\/www.openassessments.com\/assessments\/1213\r\n\r\n<\/div>","rendered":"
\n

Treasury stock<\/strong><\/h4>\n

Treasury stock is the corporation\u2019s own capital stock that it has issued and then reacquired; this stock has not been canceled and is legally available for reissuance. Because it has been issued, we cannot classify treasury stock as unissued stock.\u00a0 Instead, treasury stock reduces shares outstanding but does not change shares issued.<\/p>\n

A corporation may reacquire its own capital stock as treasury stock to: (1) cancel and retire the stock; (2) reissue the stock later at a higher price; (3) reduce the shares outstanding and thereby increase earnings per share; or (4) issue the stock to employees. If the intent of reacquisition is cancellation and retirement, the treasury shares exist only until they are retired and canceled by a formal reduction of corporate capital.<\/p>\n

For dividend or voting purposes, most state laws consider treasury stock as issued but not outstanding, since the shares are no longer in the possession of stockholders. Also, accountants do not consider treasury shares outstanding in calculating earnings per share.<\/p>\n

When firms reacquire treasury stock, they record the stock at cost as a debit in a stockholders\u2019 equity account called Treasury Stock.[3]<\/a> They credit reissuances to the Treasury Stock account at the original cost of paid to reaquire the stock (not the par or stated value). Thus, the Treasury Stock account is debited at cost when shares are acquired and credited at cost when these shares are sold. Any excess of the reissue price over cost represents additional paid-in capital and is credited to Paid-In Capital\u2014Common (Preferred) Treasury Stock.<\/strong><\/p>\n