04. Treasury Stock: Key Concepts

By Jay

🏦 Treasury Stock (USCPA FAR)

1. ✅ Definition

  • Treasury stock refers to a corporation's own stock that was issued and subsequently reacquired.
  • Treasury stock is not an asset; it is a contra-equity account.
  • It reduces total shareholders' equity on the balance sheet.
  • Treasury shares do not have voting rights or receive dividends.

2. 📘 Accounting Methods

MethodDescription
Cost MethodTreasury stock is recorded at reacquisition cost. Most commonly used.
Par Value MethodTreasury stock is recorded at par value. Less commonly used.

3. 🧾 Cost Method Details

✅ Treasury Stock Purchase

Dr. Treasury Stock    $XX
    Cr. Cash              $XX

✅ Reissuance of Treasury Stock (Above Cost)

Dr. Cash                     $XX
    Cr. Treasury Stock           $YY
    Cr. Additional PIC - TS      $(XX - YY)

✅ Reissuance of Treasury Stock (Below Cost)

First, reduce any existing APIC - Treasury Stock.

If insufficient, remaining is debited to Retained Earnings.

Dr. Cash                     $XX
Dr. APIC - Treasury Stock    $YY (if available)
Dr. Retained Earnings        $(if needed)
    Cr. Treasury Stock           $ZZ

4. 📎 Important Points

Treasury stock transactions never affect net income.

No gains or losses are recognized on treasury stock transactions.

Treasury stock does not participate in dividends or EPS.

Shown as a deduction from total equity on the balance sheet.

5. 📂 Par Value Method (Less Common)

Treasury stock recorded at par value.

APIC – Common Stock may be debited when reacquiring shares.

Reissuance at price different from original issuance can affect APIC or RE.

6. 💡 USCPA Exam Tips

Focus on Cost Method, as it's heavily tested.

Understand the effect on APIC and RE when reissuing below cost.

Know that treasury stock reduces total equity and does not affect net income.

Treasury stock transactions do not impact assets or liabilities directly.

📝 Practice Question 1

Question:

ABC Corp. reacquired 1,000 shares of its $1 par value common stock for $20 each. Later, it reissued 400 shares at $25 per share. Using the cost method, what amount is credited to Additional Paid-in Capital - Treasury Stock?

A. $2,000

B. $1,000

C. $0

D. $4,000

✅ Correct Answer: A Explanation:

Cost: $20/share; Reissue: $25/share → $5/share gain × 400 shares = $2,000 APIC-TS

📝 Practice Question 2

Question:

XYZ Inc. repurchased 500 treasury shares at $30 per share. Later, the company reissued the shares at $25 per share. APIC-Treasury Stock has no balance. How is the $2,500 loss treated?

A. Reported as an expense on the income statement

B. Credited to Retained Earnings

C. Debited to Retained Earnings

D. Ignored

✅ Correct Answer: C Explanation:

Reissued below cost by $5/share → $5 × 500 = $2,500

No APIC-TS available → the difference is debited to Retained Earnings