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How does treasury stock affect the stockholders' equity section of the balance sheet and the...

Question:

How does treasury stock affect the stockholders' equity section of the balance sheet and the impact on the calculation of earnings per share?

EPS

EPS or earnings per share is a ratio of earnings available for common shareholders to the number of common shares outstanding, it shows how much out of the total profit a shareholder deserves for each share held by them.

Answer and Explanation:

Treasury stock represents repurchased common shares hence it reduces the shareholder's equity. And since these shares are not outstanding, these are not considered while calculating EPS, which means they reduce the number of shares and resultingly the EPS increases.


Learn more about this topic:

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Calculating Earnings Per Share for Post-Retirement Benefits

from Accounting 202: Intermediate Accounting II

Chapter 9 / Lesson 4
298

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