Statutory Influence on Treasury Stock Accounting.

Abstract Recognition in the corporate accounts of statutory provisions prescribing a permanent reduction in retained earnings for treasury stock purchases requires a major departure from conventional net worth accounting. The acquisition and disposition of its shares by a corporation are totally unrelated events. The purpose of the paper is to analyze statutory provisions of this type and to suggest applicable accounting procedures. The particular emphasis will be placed on the California statute. First, accounting for the acquisition of treasury shares will be discussed. It will be shown that a Treasury Stock account is not needed, and that charges arising from treasury stock purchases should be applied directly to retained earnings. Thus, treasury stock purchase and disposition transactions are completely divorced. The remainder of the discussion will be devoted to an investigation of the methods of accounting for the various treasury stock disposition transactions, i.e., sale, retirement, and reissue as a stock dividend.