A corporation purchases 40,000 shares of its own $10 par ordinary shares for $25 per share, recording it at cost. What will be the effect on total equity?

Question

Quizplus · Accepted Answer

When a corporation purchases its own shares, it is essentially buying back equity, which reduces total equity. The cost of the shares is $25 per share for 40,000 shares, totaling $1,000,000. Therefore, total equity decreases by $1,000,000.

A Corporation Purchases 40,000 Shares of Its Own $10 Par