Lesson: Basics of Treasury Stock

In this lesson, Nick Palazzolo, CPA, demystifies the topic of treasury stock, explaining its role in internal tracking alongside Additional Paid-In Capital (APIC). He outlines reasons why companies may choose to buy back their own stock, such as to improve financial ratios, signal a bullish outlook on the company’s performance, provide value to shareholders through stock appreciation, and satisfy stock compensation requirements for employees. Nick breaks down the implications of stock buybacks on earnings per share and return on equity, addresses tax considerations, and illustrates the impact of supply and demand on stock price. Furthermore, he compares the cost method and par value method of recording treasury stock, drawing parallels to accounting treatments for receivables, offering clarity on this complex subject just as an experienced mentor would do. Expect to see practical examples that dispel any worries about understanding these accounting concepts.