A corporation purchased 10,000 shares of its own $20 par value common stock for $30 per share. The effect on total stockholders' equity is:

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When a corporation purchases its own stock, it is considered treasury stock which is recorded on the balance sheet as a contra equity account. The cost of the treasury stock is subtracted from the total stockholders' equity. In this case, the corporation purchased 10,000 shares for $30 per share, which equals a total cost of $300,000. Since the par value of the common stock is $20 per share, the total common stock issued was $200,000 (10,000 shares x $20 per share). Therefore, the effect on total stockholders' equity is a decrease of $300,000 ($300,000 - $200,000).

A Corporation Purchased 10,000 Shares of Its Own $20 Par