Multiple Choice
Shares of stock that are repurchased by the issuing corporation are referred to as:
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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
How is treasury stock shown on the balance sheet?
A
As a deduction from total stockholders' equity
B
As a liability under long-term liabilities
C
As an asset under current assets
D
As an addition to common stock
Verified step by step guidance1
Understand the concept of treasury stock: Treasury stock refers to shares that were issued and later reacquired by the company. These shares are not considered outstanding and do not have voting rights or pay dividends.
Recall the accounting treatment of treasury stock: Treasury stock is not classified as an asset because it does not represent a resource that will provide future economic benefits. Instead, it is a contra-equity account, meaning it reduces stockholders' equity.
Locate treasury stock on the balance sheet: Treasury stock is shown as a deduction from total stockholders' equity. This reflects the reduction in equity due to the repurchase of shares.
Eliminate incorrect options: Treasury stock is not a liability because it does not represent an obligation to pay. It is also not an asset because it does not provide future economic benefits. Additionally, it is not added to common stock because it reduces equity rather than increasing it.
Conclude the correct classification: Treasury stock is shown on the balance sheet as a deduction from total stockholders' equity, which aligns with its nature as a contra-equity account.
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