A corporation purchases 20,000 shares of its own $10 par common stock for $25 per share, recording it at cost. What will be the effect on total stockholders' equity?
A) Increase by $200,000
B) Decrease by $500,000
C) Increase by $500,000
D) Decrease by $200,000

Question

Quizplus · Accepted Answer

When a corporation purchases its own stock, it is recorded as treasury stock and reduces total stockholders' equity by the cost of the purchase. In this case, 20,000 shares at $25 per share results in a $500,000 decrease in stockholders' equity.

A Corporation Purchases 20,000 Shares of Its Own $10 Par