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

Question

Quizplus · Accepted Answer

When a corporation purchases its own shares, it decreases the amount of outstanding shares, thereby reducing the total equity of the company. In this case, the corporation purchases 30,000 shares at a cost of $35 per share. The total cost of the shares would be: 30,000 shares x $35 per share = $1,050,000. Since the corporation records the shares at cost, the effect on equity would be a decrease of $1,050,000.

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