Corporations: Paid-in Capital, Retained Earnings, Dividends, and Treasury Stock

Paid-in capital – Treasury stock transactions

Another source of capital is treasury stock transactions. Treasury stock is the corporation's own stock, either preferred or common, that it has issued and reacquired. It is legally available for reissuance. By reacquiring shares of its own outstanding capital stock at one price and later reissuing them at a higher price, a corporation can increase its capital by the difference between the two prices. If the reissue price is less than acquisition cost, however, corporate capital decreases. We discuss treasury stock transactions at length later in this chapter.