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, it reduces the number of outstanding shares and therefore reduces total stockholders' equity. In this case, the corporation spent 40,000 x $45 = $1,800,000 to buy back its own shares, so stockholders' equity decreases by the same amount. Therefore, the correct choice is C) Decrease by $1,800,000.

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