A corporation purchases 60000 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 is known as treasury stock. This reduces the number of outstanding shares, but does not change the total amount of stockholders' equity. However, treasury stock is recorded at cost, which in this case is $45 per share. Therefore, the corporation's assets decrease by $2,700,000 (60,000 shares x $45 per share) and so does the stockholders' equity since assets decrease by the same amount as the treasury stock purchase. Therefore, the correct answer is C.

A Corporation Purchases 60000 Shares of Its Own $30 Par