Question

A corporation purchases 29000 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?
a. Decrease by $580000.
b. Increase by $1015000.
c. Decrease by $1015000.
e. Decrease by $435000.

Answer 1

Answer:

c. Decrease by $1015000.

Explanation:

The trasury stock are recorded at cost.

Which means we record at their market value

29,000 shares x 35 market price = 1,015,000 total cost of the stock

TS 1,015,000 debit

 cash              1,015,000 credit

The TS are a contra-equity account. It decreasesthe equity.

The equity will decrease by 1,015,000

There are less share outstnding, the equity of the company is lower.

It will increase once it sale his stocks.