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Companies such as Apple, Chevron, Proctor & Gamble, and Lowe's spend a lot of their cash buying back their shares of stock. The result is
Companies such as Apple, Chevron, Proctor & Gamble, and Lowe's spend a lot of their cash buying back their shares of stock. The result is to spread future net income over fewer outstanding shares of stock, resulting in an increase in earnings per share, assuming net income at least remains constant. Assume you are the CFO of a company that has also been buying back shares of your own company's stock. The CEO has watched the market price per share increase over time and would like to now reissue those previously repurchased shares of stock and recognize a gain on the difference between what those shares were repurchased for and the amount at which they can now be resold. You tell the CEO that a gain (or loss) cannot be recognized on treasury stock. The CEO asks you the following series of questions: If I buy a piece of equipment, it goes up in value, and I want to resell it on the open market, can I record a gain on that transaction? If I buy inventory and resell it at a higher price than I paid for it, am I able to record a net gain (gross profit = the difference between selling price and cost of goods sold) on that inventory? If I invest in the stock of another company and subsequently resell that stock when the price increases, am I able to record a sale on that transaction? Your CEO then says to you, "If I am able to record a gain in each of these instances, why can I not record a gain when I resell my own company's stock after the price has increased?" Respond to the following in a minimum of 175 words as if you are responding to the CEO in an email: How would you respond to the CEO? Support your reasoning. Note: The CEO will not accept "Because that is what the rules require" as an answer. You need to think about the why of the rule. After your response, list any sources used according to APA guidelines
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