A company reacquires its own shares during the fiscal year and reports the transaction in the theoretically correct manner.What effect will this transaction have on shareholders' equity and earnings per share, respectively?

Question

Quizplus · Accepted Answer

Reacquiring its own shares decreases shareholders' equity because the company is using its assets to buy back shares. This action reduces the number of outstanding shares, which typically increases the earnings per share (EPS) since the same amount of earnings is distributed among fewer shares.

A Company Reacquires Its Own Shares During the Fiscal Year