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

When a corporation purchases its own stock, it is recorded as treasury stock at cost, which reduces total stockholders' equity by the cost of the purchase. In this case, 5,000 shares at $35 per share equals $175,000, so stockholders' equity decreases by $175,000.

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