A Company Acquires Its Own Stock to Hold as Treasury

question 98

Multiple Choice

A company acquires its own stock to hold as treasury stock. If the company prepares the statement of cash flows using the indirect method or the direct method, where would this transaction appear?

• A)The acquisition of treasury stock would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash payment under the direct method.
• B)The acquisition of treasury stock would be presented in the non-cash investing and financing activities section under both methods.
• C)The acquisition of treasury stock would be presented in the financing activities section as a cash payment under both methods.
• D)The acquisition of treasury stock would be presented in the investing activities section as a cash payment under both methods.

Understand the accounting treatment and implications of treasury stock transactions and dividend distributions.

Understand the concept and mechanics of stock splits and stock dividends, and the differences between them.

Learn how to rectify accounting errors and adjust for changes in estimates related to assets' accounting.

Calculate a company's price-earnings ratio using given financial data.

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Definitions:

Framing

The way information is presented or expressed to influence perception and decision-making.

Positive Terms

Words or expressions associated with good, beneficial, or desirable qualities, often conveying optimism or favorable outcomes.

Loss-framed Appeal

A persuasive message that emphasizes the potential losses or negative outcomes that can result from failing to adopt a behavior or stance.

Downside

The negative aspect or disadvantage of a situation or decision.