Treasury Stock Questions
What is treasury stock?Treasury stock refers to stock that is bought back by the company. It is usually created when a company buys back its shares in the open market. This is normally done by stockholders because the buyback helps to lower the number of shares that are outstanding in the company. Read below where Experts have answered questions pertaining to treasury stock.
What effect would the purchase of treasury stock have on common stock?In many cases, the common stock outstanding may be decreased by the purchase of treasury stock.
What would a treasury stock be reported as in the financial statement of a company?The treasury stock may be reported as a deduction from the total paid in capital and retained earnings on a company’s financial statement.
Would the profit made from the sales of a treasury stock be reported on a company’s income statement?The profit made by a company by selling treasury stock may not be reported on the income statement. This profit needs to be reported on the balance sheet of the company as additional paid in capital from the treasury stock. The reason behind this is that treasury stock sales are similar to the sale of new stocks in the market. As a result, the money that is earned from the sale will be counted as equity and not as an income.
Would the interest that is accumulated due to the purchase of treasury stock be considered as a deductible expense for a corporation?If a loan was taken to purchase the stock, then the interest that the loan may accumulate may be considered as a deductible expense for the company.
Is it possible to resell treasury stock at a price that is lower than the par value?In some situations, it may be possible to resell treasury stock at a cost that is lower than the par value.
Would a company’s stock price be affected if a company bought back its stock?In most situations, if a company buys back its stock, it may not have any effect on the stock price. However, this purchase can result in an improvement in certain per share ratios like price/earnings. The cost of the shares will remain the same since the market risk will increase with the share amount.
Why do companies buy back their own stock?Companies buy back their own stock in order to reward the stock holders with stock options. Sometimes, the call option holders may be affected by the payment of dividends. This purchase of company shares can increase the value of the remaining shares thereby benefiting these call option holders.
Would the purchase of a treasury stock by a company be considered a deductible expense for tax purposes?Purchase of treasury stock by a company may not be considered as deductible expense for tax purposes since it is not a business expense.
There are various stock options available to people who want to purchase them as an investment. Treasury stock is one such option. It is important for you to be aware of the difference between the various stock options available and the pros and cons of each kind of stock. Knowledge about these will help you decide better on where you want to invest your money. You may ask an Expert if you have any doubts about treasury stock or need more information about them.