Please refer to the following information for Peartree Company:
• Common stock, $1.00 par, 100,000 issued, 95,000 outstanding
• Paid-in capital in excess of par: $2,150,000
• Retained earnings: $910,000
• Treasury stock: 5,000 shares purchased at $20 per share
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If Peartree purchases an additional 1,000 shares of treasury stock at $18 per share, the total equity of the company will go up by $18,000.

Question

Quizplus · Accepted Answer

Purchasing treasury stock does not increase the total equity of the company. It decreases the total equity by the amount paid to purchase the treasury stock. Therefore, the total equity of the company will decrease by $18,000 if Peartree purchases an additional 1,000 shares of treasury stock at $18 per share.

Please Refer to the Following Information for Peartree Company