Many accounting students get this wrong because they confuse issued shares with outstanding shares. These are not the same thing. Treasury shares sit between them, and missing that step costs you the correct answer.
Answer
The number of outstanding shares is 14,000.
Use this formula:
Outstanding Shares = Issued Shares − Treasury Shares
= 20,000 − 6,000 = 14,000
Why Not the Other Options?
31,000 — This adds issued and authorized shares together. That is not a recognized formula in share accounting.
25,000 — This is simply the authorized shares figure. Authorized shares represent the maximum a company can issue, not what is currently held by shareholders.
19,000 — This likely comes from subtracting 1,000 instead of 6,000. A misread of the treasury shares figure.
20,000 — This is the issued shares total. It ignores treasury shares entirely.
Key Terms Explained
Authorized Shares (25,000) The maximum number of shares a corporation is legally permitted to issue, as stated in its corporate charter. This number does not affect the outstanding shares calculation.
Issued Shares (20,000) Shares that have been formally issued to shareholders at any point. This includes treasury shares.
Treasury Shares (6,000) Shares the company originally issued but later bought back. The company holds these itself. They carry no voting rights and receive no dividends.
Outstanding Shares (14,000) Shares currently held by external investors — individuals, institutions, or insiders outside the company. This is the number used in calculations like earnings per share (EPS).
The Formula to Remember
| Term | Value |
|---|---|
| Issued Shares | 20,000 |
| Less: Treasury Shares | 6,000 |
| Outstanding Shares | 14,000 |
Outstanding shares never exceed issued shares. Authorized shares are always the ceiling above both.
