The acquisition of treasury stock by a corporation
A) increases its total assets and total stockholders' equity.
B) decreases its total assets and total stockholders' equity.
C) has no effect on total assets and total stockholders' equity.
D) requires that a gain or loss be recognized on the income statement.

Question

Quizplus · Accepted Answer

The acquisition of treasury stock by a corporation reduces the total number of outstanding shares and therefore decreases both total assets and total stockholders' equity. Treasury stock is considered a contra equity account and is subtracted from total stockholders' equity on the balance sheet. There is no gain or loss recognized on the income statement when a company acquires its own stock.

The Acquisition of Treasury Stock by a Corporation