Question

Gains and losses on the purchase and resale of treasury stock may be reflected only in?

1) Income statement
2) Balance sheet
3) Statement of cash flows
4) Statement of retained earnings

Answer 1

Gains and losses on the purchase and resale of treasury stock are reflected in the Statement of Retained Earnings and not the Income Statement, Balance Sheet, or Statement of Cash Flows.

Step-by-step explanation:

Gains and losses on the purchase and resale of treasury stock may be reflected only in the Statement of Retained Earnings. The income from the sale of treasury stock is not considered revenue, and thus it doesn't appear on the Income Statement.

Instead, it is a transaction with shareholders that alters the equity structure of the balance sheet. Treasury stock transactions also do not affect the total assets or liabilities of a company, so they do not appear on the Balance Sheet. Because these transactions do not reflect operational cash flows, they are excluded from the Statement of Cash Flows.