CFA CFA Level 1 Why Does Acquiring Treasury Stock Reduce Owner’s Equity?

Why Does Acquiring Treasury Stock Reduce Owner’s Equity?

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    • Avatar of ufsguyufsguy
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        Treasury stock is a contra-account, posted against Capital Stock and Additional Paid In Capital.

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        @shannondaily‌ 
        lol
        also, regarding your dividends paid part, dividends paid amount would be less than the price of the equity…

      • Avatar of shannondailyshannondaily
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          Found the answer on Investopedia, but couldn’t find it in the Schweser Notes. I feel a little silly. I was totally overthinking it. :blush: 

          “Though investors may benefit from a share price increase, adding treasury stock will – at least in the short-term – actually weaken the company’s balance sheet. To grasp why this is the case, consider the basic accounting equation: Assets – Liabilities = Stockholder’s Equity. The organization has to pay for its own stock with an asset (cash), thereby reducing its equity by an equivalent amount.”

          http://www.investopedia.com/articles/markets/013014/getting-acquainted-treasury-stock.asp

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