A company repurchased shares of its common stock for $19,000.The stock was initially issued for $12,000 and had a $5,000 par value.Which of the following statements correctly describes the effects of the repurchase of company's common stock shares?
A)Net income increases by $7,000.
B)Net income decreases by $7,000.
C)Stockholders' equity increases $12,000.
D)Stockholders' equity decreases $19,000.

Question

Quizplus · Accepted Answer

The repurchase of the company's common stock shares reduces the stockholders' equity by the amount paid to buy back the shares, which in this case is $19,000. Therefore, option D is the correct choice. Option A and B are incorrect because the repurchase of shares does not have a direct impact on net income. Option C is incorrect because issuing shares and repurchasing shares both affect stockholders' equity but in opposite ways. Issuing shares increase stockholders' equity, whereas repurchasing shares decreases stockholders' equity.

A Company Repurchased Shares of Its Common Stock for $19,000