why do companies choose to purchase stock from investors there are a few reasons why companies buy and hold treasury stock including 
example of treasury stockhere s a hypothetical example to show how treasury stock works let s say that abc company originally sold 5 000 shares of common stock with a 1 par value at 41 per share on its balance sheet the company had abc company has excess cash and believes its stock trades below its intrinsic value as a result it decides to repurchase 1 000 shares of its stock at 50 for a total value of 50 000 the repurchase creates a treasury stock contra equity account under the cash method the treasury account would be debited for 50 000 and cash credited for 50 000 under the par value method treasury stock would be debited for 1 000 1 000 shares x 1 par value common stock apic would be debited for 49 000 1 000 shares x 50 repurchase price 1 par value and cash would be credited for 50 000 the total shareholders equity is decreased by 50 000 in both methods assume the total sum of abc company s equity accounts including common stock apic and retained earnings was 500 000 before the share buyback the repurchase brings the total shareholders equity down to 450 000 