Multiple Choice
Shares of stock previously sold by the corporation that are repurchased are called:
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12. Stockholders' Equity
Treasury Stock
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following statements regarding treasury stock is false?
A
Purchasing treasury stock reduces total stockholders' equity.
B
Treasury stock does not have voting rights or receive dividends.
C
Treasury stock is considered issued but not outstanding.
D
Treasury stock is reported as an asset on the balance sheet.
Verified step by step guidance1
Understand the concept of treasury stock: Treasury stock refers to shares that a company has repurchased from its shareholders. These shares are considered issued but not outstanding, meaning they are no longer part of the shares available to the public or used in calculating dividends and voting rights.
Review the impact of treasury stock on stockholders' equity: When a company purchases treasury stock, it reduces total stockholders' equity because the cost of the repurchased shares is subtracted from equity in the balance sheet.
Clarify the rights associated with treasury stock: Treasury stock does not have voting rights or receive dividends because these shares are held by the company itself and are not part of the outstanding shares.
Examine the classification of treasury stock on the balance sheet: Treasury stock is reported as a contra-equity account, meaning it reduces stockholders' equity. It is not reported as an asset because it does not represent a resource that provides future economic benefits.
Identify the false statement: Based on the above clarifications, the false statement is 'Treasury stock is reported as an asset on the balance sheet,' as treasury stock is classified as a reduction in equity rather than an asset.
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