When treasury stock was sold below cost,the decrease was debited to Loss on Sale.This error would cause:

Question

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When treasury stock is sold below cost, the decrease should be debited to a contra-equity account called "Treasury Stock," based on the cost of the shares sold. If the decrease is instead debited to "Loss on Sale," it will cause an overstatement of stockholders' equity because the loss reduces equity, and if the loss is not properly recorded, it will appear as if there is more equity than there actually is. Therefore, the best choice is C, which states that the period end stockholders' equity will be overstated. Choice A is incorrect because the error has no effect on assets, and choice B is incorrect because the error has no effect on liabilities.

When Treasury Stock Was Sold Below Cost,the Decrease Was Debited