Several years ago,Doran Corp.issued 100,000 of its $2 par value stock for a total of $800,000.This is the only time that it has sold stock.This year it purchased 1,000 shares of its own stock for $10 a share.As a result of acquiring treasury stock:
A) its stockholders' equity decreases by $10,000.
B) it will recognize a loss of $2,000.
C) its common stock account decreases by $10,000.
D) its retained earnings decrease by $10,000.

Question

Quizplus · Accepted Answer

The purchase of treasury stock decreases the amount of outstanding shares and therefore decreases the total stockholders' equity by the cost of the treasury stock purchased. In this case, 1,000 shares were purchased for $10 each, resulting in a total decrease of $10,000 in stockholders' equity. The other options are incorrect because there is no loss to recognize since the purchase price of the treasury stock is the same as the original issuance price, and both common stock and retained earnings remain unchanged.

Several Years Ago,Doran Corp