Discuss the propriety of showing:

1. Treasury stock as an asset.
2. “Gain” or “loss” on sale of treasury stock as additions to or deductions from income.
3. Dividends received on treasury stock as income.

As a firm cannot own itself, treasury stock should not be recognized as an asset. Hence, it is required to be reported as part of the equity section.

Suppose a company calculates any gain or loss on the sale of treasury stock. In that case, it is required to report it in paid-up capital rather than adding or subtracting it to the business’s income and expenses. The gain or loss from the sale of treasury stock is not measured as an operating profit or loss.

A change in paid-in capital should be included for these gains or losses. In certain circumstances, it may be appropriate to allocate the “loss” to Retained Earnings.

Treasury stock dividends should never be reported as income; instead, they should be credited immediately to retained profits, against which they were previously charged.