CFA Practice Question

CFA Practice Question

All of the following are sources of decreases in capital stock outstanding except ______.
A. sales of treasury stock
B. retirement of preferred stock or purchases of common stock
C. reverse stock splits
Explanation: The sale of treasury stock would increase the level of capital stock outstanding. Treasury stock is stock held by the corporation; it is therefore not outstanding.

User Contributed Comments 7

User Comment
shasha reacquire treasure stock - 'build-up' treasury stock reissue treasure stock - sell treasury stock
wollogo Can someone tell me how reverse stock splits can decrease capital stock? Is capital stock the no. if shares outstanding or the value of stock outstanding? Stock splits should not affect the value of capital stock.
PedroEdmundo wollogo, a value cannot be outstanding so the question is regarding the number of stock. Hope that helps
cocomilk thanks, PedroEdmundo. That clarifies my confusion, too.
nsmwaura Hmmm...thats waylaying people... knocked me down.
Xocrevilo Confused me too. Think of it as shares outstanding...
Kuki the key word here is OUTSTANDING

"retirement of preferred stock" means decrease in preferred stock
"reverse stock splits" means for e.g. you give 1 stock for every 2 stocks outstanding.
"purchases of common stock" buying back stock from market to hold in treasury

therefore only 1 can be correct.
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