A corporation purchases 30,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity?

Question

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When a corporation purchases its own stock, it is known as treasury stock. The purchase of treasury stock decreases total stockholders' equity by the cost of the shares purchased. In this case, the corporation purchases 30,000 shares for $35 per share, for a total cost of $1,050,000. Therefore, total stockholders' equity will decrease by the same amount, resulting in a choice of (C) Decrease by $1,050,000.

A Corporation Purchases 30,000 Shares of Its Own $20 Par