Green Corporation purchases 40,000 shares of its own $10 par value common stock for $25 per share. What will be the effect on stockholders' equity?

Question

Quizplus · Accepted Answer

When a company purchases its own shares, it reduces the number of outstanding shares, which results in a decrease in stockholders' equity. In this case, Green Corporation is purchasing 40,000 shares of its own stock for $25 per share, which represents a total cost of $1,000,000. Since the par value of the stock is $10 per share, the total par value of the shares being repurchased is $400,000. Therefore, the net effect on stockholders' equity will be a decrease of $1,000,000 - $400,000 = $600,000.

Green Corporation Purchases 40,000 Shares of Its Own $10 Par