A corporation purchases 40,000 shares of its own $30 par common stock for $45 per share, recording it at cost.What will be the effect on total stockholders' equity?

Question

Quizplus · Accepted Answer

When a corporation purchases its own stock, the total stockholders' equity is reduced by the cost of the stock repurchased. In this case, the corporation purchases 40,000 shares of its own $30 par common stock for $45 per share, which is $15 above par value. Therefore, the corporation will reduce its total stockholders' equity by $1,800,000 (40,000 shares x $15). Thus, the correct option is C, Decrease by $1,800,000.

A Corporation Purchases 40,000 Shares of Its Own $30 Par