Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Treasury Stock

Financial Accounting

12. Stockholders' Equity

Treasury Stock

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Multiple Choice

Which of the following statements is a reason why a company would buy treasury stock?

To decrease the company's ownership in its subsidiaries

To increase the number of shares available for public trading

To increase earnings per share by reducing the number of shares outstanding

To distribute additional dividends to shareholders

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Verified step by step guidance

Understand the concept of treasury stock: Treasury stock refers to shares that a company has repurchased from its shareholders. These shares are held by the company and are not considered outstanding shares.

Analyze the reasons why a company might repurchase its own stock. Common reasons include increasing earnings per share (EPS), having shares available for employee stock compensation plans, or influencing the stock price.

Evaluate the provided options: The first option, 'To decrease the company's ownership in its subsidiaries,' is incorrect because treasury stock transactions do not affect ownership in subsidiaries. The second option, 'To increase the number of shares available for public trading,' is also incorrect because repurchasing shares reduces the number of shares available for trading.

Focus on the correct reasoning: The correct answer is 'To increase earnings per share by reducing the number of shares outstanding.' When a company repurchases its shares, the total number of outstanding shares decreases, which can lead to an increase in EPS if net income remains constant.

Clarify the incorrect option: The last option, 'To distribute additional dividends to shareholders,' is incorrect because treasury stock does not directly relate to dividend distribution. In fact, treasury shares do not receive dividends.