Which of the following statements about treasury share transactions is correct?
A)The total number of shares issued increases when treasury shares are purchased.
B)The total number of shares authorized changes when treasury shares are purchased.
C)Gains and losses on treasury share transactions are reported on the income statement.
D)A shareholders' equity account is debited when treasury shares are purchased.

Question

Quizplus · Accepted Answer

When treasury shares are purchased, a shareholders' equity account is debited (usually called "Treasury Stock") to reduce the total shareholders' equity. The total number of shares issued stays the same, but the number of outstanding shares decreases, which may affect the calculation of earnings per share. Gains and losses on treasury share transactions are recorded in a separate account called "Gain (Loss) on Treasury Stock Transactions" and usually reported on the "Other Comprehensive Income" section of the statement of changes in shareholders' equity. The total number of shares authorized usually does not change when treasury shares are purchased, as the authorization represents the maximum number of shares the company is allowed to issue.

Which of the Following Statements About Treasury Share Transactions Is