Final answer:
The correct answer for the accounting treatment of a company repurchasing its own securities is B. retired shares or treasury shares. These are recorded as a contra-equity item on the balance sheet, reducing shareholders' equity, and are not categorized as an expense or a contra-asset.
Step-by-step explanation:
A company that repurchases its own securities treats the repurchased shares as either retired shares or treasury shares, depending on the company's intention post-repurchase. This means the correct answer is B. retired shares or treasury shares. When shares are bought back, they may be held by the company for reissue or retired permanently. It should be noted that this repurchase is not accounted for as an expense on the income statement since it does not represent an outflow related to operational activities or costs generated by the company.
Purchased treasury shares are recorded as a contra-equity item because they represent paid-in capital that has been returned to the company. Consequently, this decreases shareholders' equity on the balance sheet rather than retained earnings or assets, as the shares are no longer considered issued and are not part of the outstanding shares that could claim dividends or equity in the event of liquidation. However, it is important to distinguish that treasury shares do not reduce total shareholders' equity by the cost of the repurchased shares, but rather through the reduction of the shares issued and outstanding.