If a company purchases shares of another company, it records this transaction as treasury stock.
22. Stock repurchases reduce the number of shares outstanding, thereby increasing earnings per share.
23. We record treasury stock at the cost of the shares reacquired.
24. Treasury stock is a contra-equity account since treasury stock increases total stockholders’ equity.
25. When we reissue treasury stock, we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital.
26. Retained earnings represent the earnings retained in the corporation – earnings not paid out as dividends to stockholders.
27. The amount of retained earnings equals net income minus dividends for the current year.
28. If a company has expenses that are more than revenues, the net loss decreases retained earnings.
29. Dividends are paid on all shares issued by the company including treasury stock.
30. Total assets, total liabilities, and total stockholders’ equity do not change as a result of a stock dividend.
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