The answer is a definite yes. Each year, for example, Sears, Roebuck & Company spends billions of dollars to repur-chase shares of its own stock. Referred to as treasury shares, these shares of stock have been repurchased by the company, which intends to resell them in the future. One of the reasons companies such as Sears purchase their own shares of stock is to satisfy the requirements of stock option plans. Stock option plans allow employees to purchase stock in the company they work for, often at a favorable price. Because these plans are an important part of employees' compensation, the company is required to have shares available to meet its commitment under these plans. Sears is not unique in this regard. In fact, it is difficult to find a major corporation that does not engage in treasury stock transactions on a regular basis, and in many cases the primary motivation is for stock option plans.
AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
Discuss the advantages and disadvantages of organizing a business as a corporation. |
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Distinguish between publicly owned and closely held corporations. |
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Explain the rights of stockholders and the roles of corporate directors and officers. |
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Account for paid-in capital and prepare the equity section of a corporate balance sheet. |
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Contrast the features of common stock with those of preferred stock. |
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Discuss the factors affecting the market price of preferred stock and common stock. |
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Explain the significance of book value and market value of capital stock. |
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Explain the purpose and effects of a stock split. |
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Account for treasury stock transactions. |