"1. When a company buys stock on open market, I assume they paycash. What asset account do they credit?"Since they are paying cash (99% of the time)for the stock, then cash is the credited account and a contra-equity account called Treasury stock is debited. A contra-equity account is tread similarly to a contra-asset account like accumulated depreciation."2. What happens to actual shares purchased? Do they simply keepthe actual certificate? Or is there a procedure used toeliminate the stock? Does this have any bearing on thenumber of shares authorized to issue, but not issued?"Normally the stock is either retired (done away with)or held as treasury stock for a while. A while can be years to decades, ultimately the treasury stock is usually retired or issued back out. The total amount of shares authorized normally only changes when the company goes back to the state of incorporation (most often Delaware) and changes their charter to issue more shares. On some balance sheet (the more detailed balance sheets) you will sometimes see the following authorized x, issued y, and outstanding z. The difference between Y and Z is treasury shares."3. If, at a later date, share options are exercised at a pricemuch lower than market price, but at the same price companypaid when they purchased shares on open market, canthese shares be involved in that transaction? If so, howwould this be done on companies books?"If the shares are sold (maybe the same rules apply for issuing for stock options) at a price over the price paid for the treasury stock the entry will be : Cash Treasury Stock PIC from treasury stockIf the shares were issued at prices below the what was paid for the treasury stock then the entries are: Cash Paid in capital from treasury stock (or see note 1) Treasury stockNote 1: If there is no paid in capital from treasury stock then retained earnings are debited (reduced).If you go to a lot of tech stocks Cisco, Nortel, etc., you will very little retained earnings for this reason. 4. If company must purchase shares to transfer to optiontaker, do the just debit cash and credit expense accountfor the difference in value?"The company doesn't have to purchase the shares they issue due to options, although some do. Most certainly in the past haven't expensed anything, but more will in the future. The accounts involved were cash and various owners equity accounts. The total effect in both actuallity and the accounting, in the past, was a transfering of ownership from the stockholders to the option recepients.My financial accounting text book is 100 miles away at present and this is the best I can do from memory. If you have any other questions reply and I will look it up.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra