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 shares decreases shareholders' equity because treasury stock is a contra-equity account. It increases earnings per share (EPS) because there are fewer shares outstanding, which increases the EPS calculation.

A Company Reacquires Its Own Shares During the Fiscal Year