Crossroads Mall had 100,000 outstanding shares of common stock.On June 16,2018,Crossroads repurchased 20,000 shares of its own stock at $30 per share.On July 23,2018,Crossroads resold 10,000 shares at $28 per share.What net effect did the repurchase and the resell of common stock have on the accounting equation?

Question

Quizplus · Accepted Answer

The repurchase of 20,000 shares decreased the amount of outstanding shares, and therefore decreased the stockholders' equity. The payment of $30 per share decreased the amount of cash in the assets. 
20,000 shares x $30/share = -$600,000 
On the other hand, the resell of 10,000 shares increased the amount of cash in the assets. 
10,000 shares x $28/share = +$280,000 
However, this resell did not affect the stockholders' equity since it was not a new issuance of shares. 
Overall, the accounting equation was affected as follows: 
- Repurchase: Assets decreased by $600,000, Stockholders' Equity decreased by $600,000 
- Resell: Assets increased by $280,000 
Therefore, the net effect on the accounting equation was a decrease in assets and a decrease in stockholders' equity, option D.

Crossroads Mall Had 100,000 Outstanding Shares of Common Stock