A corporation purchases 40000 shares of its own $15 par common stock for $30 per share recording it at cost. What will be the effect on total stockholders' equity?

Question

Quizplus · Accepted Answer

When a corporation buys back its own shares, it reduces stockholders' equity by the cost of the shares purchased. In this case, 40,000 shares at $30 each equals $1,200,000, thus decreasing stockholders' equity by that amount.

A Corporation Purchases 40000 Shares of Its Own $15 Par