Question

No gain or loss is reported when treasury stock is reissued because GAAP does not consider transactions between a corporation and its owners to be profit-making activities.

A. True
B. False

Answer 1

Answer:

A) True

Explanation:

The GAAP doesn't allow corporations to record any income or loss from investments in its own stock (repurchase and reissuing) since transactions involving the owners of the corporation cannot result in profit or losses. Shareholders are the owners of the corporation and it cannot make a profit or loss by selling to itself.

Reissuing or repurchasing of stock only affects the balance sheet, like all transaction involving stocks.