When shares of common stock are issued, how are treasury stock shares related?

Disable ads (and more) with a membership for a one time $4.99 payment

Master the UCF ACG2021 Principles of Financial Accounting Final Exam. Study with comprehensive practice tests, flashcards, and multiple choice questions, each with detailed explanations. Ace your exam!

When shares of common stock are issued, treasury stock shares are related to the outstanding shares in a specific way. The total shares issued by a company represent all shares that have ever been sold to investors, including those that the company has since repurchased and held as treasury stock. Outstanding shares, on the other hand, are the shares currently held by shareholders, excluding any shares that have been repurchased by the company and are classified as treasury stock.

Given this relationship, the number of shares outstanding is calculated by taking the total shares issued and subtracting the number of treasury shares. This leads to the conclusion that the outstanding shares are effectively the shares that remain in circulation and are not held by the company itself.

This understanding is crucial for assessing a company's equity as it reflects the actual shares available to investors in the market. The other answers do not accurately describe the relationship between issued shares and treasury stock, as they misinterpret how outstanding shares are calculated in relation to the total shares issued and those repurchased.