Please refer to the following information for Petra Sales Company:
• Common stock, $1.00 par, 200,000 issued, 180,000 outstanding
• Paid-in capital in excess of par: $1,600,000
• Retained earnings: $2,440,000
• Treasury stock: 20,000 shares purchased at $12 per share
If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, the total equity of the company will go down by $70,000.

Question

Quizplus · Accepted Answer

By purchasing an additional 5,000 shares of treasury stock at $14 per share, Petra Sales will reduce its total equity by $70,000. The cost of purchasing the 5,000 shares would be $70,000 (5,000 x $14 per share), which would be deducted from the company's retained earnings. Therefore, the answer is A- True.

Please Refer to the Following Information for Petra Sales Company