treasury stock

(noun)

A treasury or "reacquired" stock is one which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings).

Related Terms

Examples of treasury stock in the following topics:

  • Accounting for Sale of Stock

    • Treasury stock is issued stock that the company has bought back from its shareholders.
    • Treasury stock also doesn't have the right to vote, receive dividends or receive liquidation value.
    • There are several reasons a company may purchase treasury stock, it may need it for employee compensation plans, to buy another company or to reduce the number of outstanding shares.
    • When treasury stock is sold the accounts used to record the transaction will vary depending on whether the stock sold above or below the cost of purchase.
    • Summarize how to account for the sale of common stock, preferred stock and treasury stock

  • Dividends Payable

    • There are two ways to distribute cash to shareholders: share repurchases (reported as treasury stock in the owner's equity section of the balance sheet) or dividends.

  • Introduction to the Retained Earning Statement

    • Line items for the retained earnings statement typically include profits or losses from operations, dividends paid, issue or redemption of stock, and any other items charged or credited to retained earnings. .
    • The Statement of Shareholder's Equity shows the inflows and outflows of capital, including treasury stock purchases, employee stock options and secondary equity issuance.

  • Relationships Between Statements

    • The statement of shareholder's equity reconciles changes in the equity accounts (contributed capital, other capital, treasury stock) from the beginning to the ending balance sheet.

  • Types of Bonds

    • These contain a provision that gives the issuer the right to call (buy back) the bond before its maturity date, similar to the call provision of some preferred stocks.
    • A convertible bond may be exchanged for shares of stock of the issuing corporation at the bondholder's option.
    • A stock warrant allows the bondholder to purchase shares of common stock at a fixed price for a stated period.
    • A bond with nondetachable warrants is virtually the same as a convertible bond; the holder must surrender the bond to acquire the common stock.
    • Detachable warrants allow bondholders to keep their bonds and still purchase shares of stock through exercise of the warrants.

  • Characteristics of Bonds

    • Bonds and stocks are both securities, but the major difference between the two is that stockholders have an equity stake in the company, whereas bondholders have a creditor stake in the company.
    • Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.
    • In the market for United States Treasury securities, there are three categories of bond maturities:

  • Reporting for a Combined Entity

    • When the amount of stock owned is >50% of common stock, a parent-subsidiary relationship is formed that requires consolidated reporting.
    • The ownership of more than 50% of voting stock creates a subsidiary.
    • In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity, locomotives, and rolling stock.
    • In contrast, a non-operating subsidiary would exist on paper only (i.e. stocks, bonds, articles of incorporation) and would use the identity and rolling stock of the parent company.
    • When the amount of stock purchased is more than 50% of the outstanding common stock, the purchasing company usually has control over the acquired company.

  • Reporting Fair Value

    • The market price of the stock is USD 1.
    • When purchasing less than 20% of a company's stock, the cost method is used to account for the investment.
    • Ownership of this quantity of stock is recorded using the cost method.
    • The market price of the stock is USD 1.
    • Explain how to record stock investments of less than 20% using Fair Value

  • Reporting Equity Investments

    • Investments recorded under the equity method usually consist of stock ownership of a company between 20% to 50%.
    • When the amount of stock purchased is between 20% and 50% of the common stock outstanding, the purchasing company's influence over the acquired company is often significant.
    • An example of how to apply the equity method to a stock investment -- assume ABC Corporation purchases 30% of XYZ Corporation (or 80,000 shares) and can exercise significant influence.
    • The market price of the stock is USD 1.

  • Types of Investments: Dependence on Ownership Share

    • A joint stock company divides its capital into issuing shares, which are offered for sale to raise capital.
    • The ownership of more than 50% of voting stock creates a subsidiary.
    • A subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and partly or wholly controlled by another company that owns more than half of the subsidiary's stock.
    • In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity, locomotives, and rolling stock.
    • In contrast, a non-operating subsidiary would exist on paper only (i.e. stocks, bonds, articles of incorporation) and would use the identity and rolling stock of the parent company.