A corporation purchases 5,000 shares of its own $20 par common stock for $35 per share,recording it at cost.What will be the effect on total stockholders' equity?

Question

Quizplus · Accepted Answer

The purchase of treasury stock reduces total stockholders' equity. The cost of the treasury stock is debited to Treasury Stock and credited to Cash. The par value of the treasury stock is debited to Paid-In Capital from Treasury Stock and credited to Common Stock. The excess of the cost over the par value is debited to Retained Earnings.

A Corporation Purchases 5,000 Shares of Its Own $20 Par