- This topic has 3 replies, 3 voices, and was last updated Jan-189:43 pm by
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Up0
Wouldn’t it increase owner’s equity, because the dividends aren’t paid to the treasury stock? Thus, more earnings are potentially/eventually spread amongst less shares.
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Up3
Treasury stock is a contra-account, posted against Capital Stock and Additional Paid In Capital.
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Up2
@shannondaily‌
lol
also, regarding your dividends paid part, dividends paid amount would be less than the price of the equity… -
Up0
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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