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Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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My S Corp bought out the shares of the only other stockholder.

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My S Corp bought out the shares of the only other stockholder. What is the proper accounting for the payment from the company to the selling stockholder?
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good afternoon. This is a pretty simple accounting transaction. You would debit treasury stock for the price, and credit cash for the same amount. Treasury stock is not treated as an asset, because a company cannot legally invest in its own stock. Rather, treasury stock is presented on the balance sheet, where it reduces the total amount of owner's equity. Once the company buys its own stock, the treasury stock balance will need to be reported on the balance sheet. The common stock line item should remain the same, but you will want to footnote this with the number of shares issued and outstanding (as these amounts will now be different). The "treasury stock" line item should be added at the bottom of the Stockholder's Equity section, where it will compensate for the overstatement in the common stock balance.

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