Accounting methods for treasury stock

Accounting practice for treasury stock encompasses two general approaches: The cost method Par value method It is important to note that precise rules do not exist for either method. The following discussions focus on the most straightforward types of transactions; further, the equity accounts used are consistent with the simplified concept. That is, the general …

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Cost method of treasury stock

Definition The cost method is based on the assumption that the acquisition of treasury stock is essentially a temporary reduction in stockholders’ equity that will be reversed when the shares are reissued. It is widely used because of its simplicity. Explanation At the time of acquisition of the shares, the Treasury Stock account is debited …

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Convertible preferred stock

Conversion In some situations, stock of one class may be changed to stock of another class. The primary events producing this result are conversions and recapitalizations. Convertible preferred stock can be exchanged for shares of common stock at the request of the holder. Conversion can be forced, however, if the stock is also callable. Convertible …

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Stock appreciation rights (SAR)

As an alternative to presenting employees with shares or warrants, many companies grant them stock appreciation rights. Under these arrangements, the employees do not have to buy shares but are rewarded just as if they owned them. For example, an executive might be entitled to receive a cash payment after four years equal in amount …

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