Treasury stock refers to a company repurchasing shares of previously issued stock. Treasury shares are not allowed to vote on corporate issues or receive dividends, as explained by the Cliffs Notes website. A company has the ability to reissue shares of treasury stock as a way of raising capital for the company’s business activities. Treasury stock appears on a company’s balance sheet and has a normal debit balance and is deducted from a corporation’s retained earnings to determine total shareholders’ equity.
Confirm the treasury stock price per share. Let’s assume a company purchased 500 shares of treasury stock at $10 per share. This means the company paid $5,000 to purchase the treasury shares.
Verify the reissue price per share and number of shares the company will reissue. Let’s say a company reissues 250 of the 500 treasury shares at $15 per share. In this scenario, the company receives $3,750 for the treasury shares. Debit the cash account for $3,750. Credit treasury shares for $2,500 because 250 shares times $10 is equal to $2,500. Crediting treasury shares decreases the amount in the company’s treasury shares account.
Subtract the amount the company paid for the treasury shares by the amount of the reissue. If a company paid $2,500 for 250 shares of treasury stock and reissued 250 shares of treasury stock for $3,750, the company made $1,250 on the transaction. In this scenario, the company must credit paid-in capital for $1,250 to recognize the gain made on the treasury stock reissuance.
References
Writer Bio
Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.