Treasury stock again

[Gretel]

This goes somewhat back to Harlan's response to the other treasury stock question but is a different scenario. I am showing my ignorance here but something does not make sense to me that I noticed on a prior year tax return.

Common Stock $100,000
no other stock
Ret.Earnings $80,000
Treasury Stock $120,000

How can the treasury stock be more than the total of stock if it is supposed to reflect stock bought back or redeemed (by the way Harlan what is the difference between buying back stock and redeeming it?).

I am still confused about the 1099-B issue. If the stockholder gets his money back doesn't this need to be reported? I looked at the instructions but did not find my answer.

This is a single owner C Corporation for which I have been asked to to the tax return and I am not sure yet that I will be comfortable with it.

[ChEAr$]

This goes somewhat back to Harlan's response to the other treasury stock question but is a different scenario. I am showing my ignorance here but something does not make sense to me that I noticed on a prior year tax return.

Common Stock $100,000
no other stock
Ret.Earnings $80,000
Treasury Stock $120,000

How can the treasury stock be more than the total of stock if it is supposed to reflect stock bought back or redeemed (by the way Harlan what is the difference between buying back stock and redeeming it?).

I am still confused about the 1099-B issue. If the stockholder gets his money back doesn't this need to be reported? I looked at the instructions but did not find my answer.

.

The balance sheet reflects common stock at par value, i.e. original issue price and is unchanged unless some of the stock is retired.

the cost of treasury stock is always recorded (as a debit of course) at actual cost at the time of the buy back. Thus stockholders' equity as shown by the balance sheet is $ 60,000 (100 + 80 - 120)

As for the 1099B issue, it is only issued by brokers (hence the letter "b") and not by individuals including corporations.

(enjoying a heat wave here in Dixie with temperature up to 69!)

[Gretel]

Thank you so much, Harlan. That makes a lot of sense. Never knew that B stands for brokerage either.

If it is correct that a stock redemption in a single shareholder corporation is treated the same as a dividend, what would be the reason for doing this?

I envy you for your spring temperatures.

[ChEAr$]

Thank you so much, Harlan. That makes a lot of sense. Never knew that B stands for brokerage either.

If it is correct that a stock redemption in a single shareholder corporation is treated the same as a dividend, what would be the reason for doing this?

I envy you for your spring temperatures.

I've never looked into this from a tax standpoint, so can't say. However, consider the accounting aspect.

For example let's say the 100,000 common stock represented initial issue of 100,000 shares at 1$ par value, and each had received 50,000 shares. If 50,000 shares had been redeemed, the entry would have been a debit of 50,000 to common stock (since the stock would have been retired, and the additional 70,000 debited to some account describing the lessening of stockholders' equity, but NOT to retained earnings. I'd have to look it up for a suggestion as to account title.

[Maribeth]

You must also look to your state laws as to whether your state allows treasury stock. My state of Washington does not. Consequently, when treasury stock is purchased, the entry is to relieve the approrpriate amount of shares of stock recorded in the common stock account, and the remainder goes to retained earnings.

Maribeth

[Gretel]

Montana does allow for treasury stock with no limitations. This whole thing has brought up interesting thoughts for me.

[ChEAr$]

Montana does allow for treasury stock with no limitations. This whole thing has brought up interesting thoughts for me.

During a spare moment this morning, I looked for an appropriate account title, but closest I could find was "premium on preferred stock" but that's no good, since that related to redemption of callable preferred stock, and the word 'premium' just does sound good.

However you may invent your own account name is you wish; there are no hard and fast rules in accounting as to naming conventions. Of course the alternative is always retained earnings. After all, it all comes out "in the wash" end of day.