Q11RQ - Horngren'S Financial And Managerial Accounting

Question

Where and how is treasury stock reported on the balance sheet?

Step-by-Step Solution

Answer

Recording treasury stock under the cost method, the cost of treasury stock is recorded at the end of the section Stockholders' Equity of the balance sheet. Treasury stock will be reduced from the value in Stockholders' Equity.

Step 1: Introduction to the topic

Treasury stock is the previously outstanding stock that has been bought back and is being held by the issuing corporate.

Step 2: Treasury stock reported on the balance sheet

The two methods of recording treasury stock are the cost and par value methods. Treasury stock is recorded in the shareholders' equity section of the balance sheet of a corporate.

Treasury stock is a contra equity account that addresses the number of shares bought back from the open market; it decreases shareholders' equity by the sum paid for the stock.

Stockholders' Equity
Preferred stock	xxx
Common stock	xxx
Retained Earnings	xxx
Less: Treasury stock	(xxx)
Total Stockholders' Equity	xxx

 

Therefore, the treasury stock value is deducted from the retained earnings to calculate the total stockholders’ equity under the stockholders’ equity section.