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tiger2010
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Joined: 18 Feb 2010
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Posted: 08 Apr 2010 at 23:19 \| IP Logged

I am confused about why should treasury stock be deducted from calculating stockholder's equity.

For example, assuming initially 100 stocks outstanding and no other items, then stockholder's equity is 100.

If 20 is reacquired, outstanding is 100-20=80 and treasury stock is 20.

So stockholder's equity is 80-20=60? Intuitively it should be 80.

Could anybody shed some light on this? Thanks!

meghna
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Joined: 21 Jun 2009
Location: United States
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Posted: 09 Apr 2010 at 14:30 \| IP Logged

Hi,

If 20 si reacquired, then u r left with 80 in ur stck Holder's equity.U r deducting twice.And Treasury stock is shares whicha re not outstanding anymore or for which there is no benefit derived like from common or preffered shares which are outstanding..I know its not the ttechnically proficient answer for your question but this is by far my understanding...

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Zeratul
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Joined: 11 Jun 2009
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Posted: 09 Apr 2010 at 15:41 \| IP Logged

The technically proficient answer is that T-Stock is a contra-equity account. It is increased INSTEAD of reducing outstanding shares; the total shares are netted against T-Stock to determine shares outstanding.

oh007
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Joined: 08 Jan 2010
Location: United States
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Posted: 09 Apr 2010 at 18:43 \| IP Logged

Hi,

I am agree with that T-stock is a contra equity account, but I am NOT agree with that it is INCREASING outstanding shares.

OUTSTANDING SHARES = # of shares ISSUED - (minuse) # of T-Stock reacquired.

So it decreasing # of shares outstanding.

In the Stock Holder Equity section,

100 shares issued ( outstanding 80 ) ; ; ; 100

T-Stock reacquired by company ; ; ; ; ; ; (20)

TOTAL STOCK HOLDER EQUITY = ; ; ; ; ; ; 80

So, Stock holder equity should be 80 not 60 .

Zeratul
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Joined: 11 Jun 2009
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Posted: 09 Apr 2010 at 20:14 \| IP Logged

Ah. What I meant was that the T-Stock account is increased (which is to say, debited) in lieu of directly reducing shares outstanding when the entity purchases back its shares and they remain issued but not outstanding.

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