about corporate repurchase their own common stock

CFA Level I
#1

Hi all, here is a question I want 2 ask: What happen to balance sheet when corporate repurchase their own common stock? Cash decrased, Common-stock decrased? but how to demostrate treasury stock value increased in the balance sheet? thanks

#2

Assets = Liabilities + Shareholder Equity. Cash decreases and Shareholder equity increases

#3

Cash decreases and SE decreases. The treasury stock acts as a contra-account on the BS. SE increasing would violate A=L+SE if A were decreasing. blackjackds Wrote: ------------------------------------------------------- > Assets = Liabilities + Shareholder Equity. > > Cash decreases and Shareholder equity increases

#4

Thanks AbbeFaria, one more question: If companny bought $10,000 treasuary stock, how record this transcation? CR Cash $10,000 DR common-stock value $10,000 how to record hat contra-account treasury stock accounts?

#5

Thanks AbbeFaria, one more question: If companny bought $10,000 treasuary stock, how record this transcation? CR Cash $10,000 DR common-stock value $10,000 how to record that contra-account treasury stock accounts?

#6

I believe that AbbeFaria has already explained this one. You have a decrease in cash (10,000$), and increase in Treasury stocks (10,000). Remember, treasury stock account is a part of equity but is actually a contra account (any amount on this account decreases the total value of equity). Share capital 100,000 Treasury stocks 10,000 Equity 90,000

#7

Thanks all, seems i need catch up definition of Contra Account

#8

Contra account is simply an off-set. Before you drive yourself crazy with this one, try to think about the differences between the following: Shares Issued - Total shares available for open market as approved by Board Shares Outstanding - Total shares on open market Treasury Shares - Shares that are Issued but not Outstanding 1) Shares Issued = 100,000 Treasury Stock = 10,000 (as the Shares Issued contra-account) Shares Outstanding = 90,000 2) Company buys 40,000 of its own shares, then Shares Issued= 100,000 Treasury Stcok = 50,000 Shares Outstanding = 50,000 3) Company sell 50,000 shares from treasury Shares Issued = 100,000 Treasury Stock = 0 Shares Outstanding = 100,000 4) Company wants to sell an additional 20,000 Shares Issued = 120,000 (company must have Board approval to issue more shares) Treasury Stock = 0 Shares Outstanding = 120,000

#9

^ Great example.

#10

Yeh, great example. Thx a lot