ABC 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 corporation purchases its own stock, it is known as treasury stock. The purchase of treasury stock decreases stockholders' equity by the cost of the shares purchased. In this case, 40,000 shares are purchased at $25 per share, resulting in a decrease of $1,000,000 in stockholders' equity.

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