Question

Leary Manufacturing Corporation purchased 5,000 shares of its own previously issued $10 par common stock for $125,000. As a result of this event, A. Leary’s Common Stock account decreased $50,000. B. Leary’s total stockholders’ equity decreased $125,000. C. Leary’s Paid-in Capital in Excess of Par Value account decreased $75,000. D. All of these answer choices are correct.

Answer 1

Answer:

D. All of these answer choices are correct.

Explanation:

When a company purchases its own shares then the equity capital is reduced, as it is not an investment, but rather reducing the ownership share.

Equity value reduces with the par value of the share.

The paid in capital in excess of par value shall also be reduced if the share is bought for a value more than the par value, but in case if it is bought for less than the par value then the par value shall reduce the equity balance and that the difference in par value and bought up value shall be added to retained earnings.

In the given instance the total equity shall be reduced by $125,000

In this the equity capital by $50,000 and paid in capital in excess of par value by $125,000 - $50,000 = $75,000

Thus, all the statements are correct.