In short
Treasury stock is a company's own shares that it has issued and later bought back but not retired. It is shown as a reduction of stockholders' equity, not as an asset.
Key takeaways
- Under the cost method, it is recorded at the price paid.
- Reissuing it above cost credits additional paid-in capital; companies never record gains or losses on their own stock.
- Treasury shares are not outstanding, so they are excluded from earnings per share and receive no dividends.
Where it's tested
FAR: Equity & Earnings Per Share — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company has 10,000 outstanding options with a $20 exercise price when the average market price is $25. Using the treasury stock method, how many incremental shares are added to diluted EPS?