A company purchased treasury stock for $19,000. The treasury stock was initially issued for $12,000 and had a $5,000 par value. Which of the following statements correctly describes the effects of the treasury stock purchase?

Question

Quizplus · Accepted Answer

When a company purchases its own treasury stock, there is a decrease in stockholders' equity because the company is essentially buying back its own shares from investors. In this case, the company paid $19,000 for the treasury stock that was originally issued for $12,000, resulting in a $7,000 decrease in stockholders' equity. Net income is not affected by the purchase of treasury stock.

A Company Purchased Treasury Stock for $19,000