Question

Treasury stock represents ______. (Check all that apply.)

A. the amount paid for stock reacquired and currently held in treasury
B. stock issued in exchange for treasury bills
C. a contra-equity account
D. the amount paid to acquire US treasury stock

Answer 1

Answer:

(A) the amount paid for stock reacquired and currently held in treasury, and

(C) a contra-equity account

Explanation:

Treasury stock represents a company's acquisition of its own shares. Thus, in a sense, it means the company will become a part owner of itself, which is frowned at by regulators worldwide. Accordingly, in the computation of stockholder's equity, a company is required to reduce outstanding number of shares by the number of treasury stocks it has acquired (thus representing a contra-equity account due to the deduction).