When treasury stock is purchased for an amount greater than its par then the total shareholders' equity decreases.
Given that the treasury stock is purchased for an amount greater than its par.
We are required to find the effect of the purchase of treasury stock for an amount greater than its par on the total shareholders' equity.
Treasury stock is basically known as treasury shares or reacquired stock, and refers to previously outstanding stock that is bought back from stockholders by the issuing company. The result of issuing treasury stock is that the total number of outstanding shares on the open market decreases. Shares of a company are a part of total shareholders' equity and because shares are issued for security, it will decrease the total shareholders;equity.
Hence when treasury stock is purchased for an amount greater than its par then the total shareholders' equity decreases.
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