Refurbish,Inc.purchased 1,000 shares of its own stock at $8 a share.Later,it reissued the 1,000 shares for $10,000.The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n):
A) $10,000 increase in stockholders' equity.
B) $10,000 decrease in stockholders' equity.
C) $8,000 increase in stockholders' equity.
D) $8,000 decrease in stockholders' equity.

Question

Quizplus · Accepted Answer

When the company reissued the 1,000 shares of treasury stock, it received $10,000 which would increase the cash account. At the same time, the company's treasury stock account would decrease by the cost of the 1,000 shares of stock it bought back, which is $8,000 (1,000 shares x $8). The remaining $2,000 ($10,000 - $8,000) would be recorded as an increase in stockholders' equity. Therefore, the entry to record the sale of treasury stock would increase stockholders' equity by $2,000 ($10,000 - $8,000).