Multiple Choice
Which of the following statements is a reason why a company would buy treasury stock?
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12. Stockholders' Equity
Treasury Stock
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Shares of stock that are repurchased by the issuing corporation are referred to as ______ stock.
A
treasury
B
common
C
authorized
D
preferred
Verified step by step guidance1
Understand the concept of treasury stock: Treasury stock refers to shares that a corporation has issued and subsequently repurchased from shareholders. These shares are held by the corporation and are not considered outstanding for voting or dividend purposes.
Differentiate between the options provided: Common stock refers to shares that represent ownership in a corporation and typically come with voting rights. Authorized stock refers to the maximum number of shares a corporation is legally allowed to issue, as specified in its charter. Preferred stock refers to shares that have priority over common stock in terms of dividends and liquidation rights.
Recognize that repurchased shares are not newly issued or outstanding, which eliminates 'authorized' and 'common' stock as correct answers.
Understand that preferred stock is a separate class of shares with specific rights and does not refer to repurchased shares.
Conclude that the correct term for shares repurchased by the issuing corporation is 'treasury stock,' as it specifically describes this scenario.
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