Which of the following statements is true regarding a corporation's purchase of treasury stock?

Question

Quizplus · Accepted Answer

a. The cost of treasury stock is a reduction in stockholders' equity.
When a corporation buys back its own shares, these shares are called treasury stock. The cost of acquiring treasury stock is recorded as a deduction from total stockholders' equity. Treasury stock does not carry voting rights, does not receive dividends, and is not included in the earnings per share calculation while it is held by the corporation.
The other statements are incorrect because:
b. Dividends must still be paid on treasury stock because it is still issued. (Incorrect - Dividends are not paid on treasury stock because these shares are considered to be not outstanding.)
c. Treasury stock is reported as an asset because it is considered an investment in the corporation's own stock. (Incorrect - Treasury stock is not classified as an asset; it is a contra equity account that reduces stockholders' equity.)
d. Treasury stock is no longer considered issued once it is back in the hands of the issuer. (Incorrect - Treasury stock is still considered issued but not outstanding. It has been reacquired by the corporation and held in its treasury, but it has not been retired or canceled.)

Which of the Following Statements Is True Regarding a Corporation's