Question

Grid Corp. acquired some of its own common shares at a price greater than both their par value and original issue price, but less than their book value. Grid uses the cost method of accounting for treasury stock. What is the impact of this acquisition on total stockholders' equity and the book value per common share

Answer 1

Answer:

Reduction

Explanation:

Transactions involving treasury stock will affect the stockholders' equity section of the balance sheet by offsetting the value of common stock tothe the tune of the amount of the repurchase

By extension, as a result of the offsetting of common stock by treasury stocks; such transactions generally reduces stockholders' equity by the amount of the repurchase.

Hence, going forward, Grid Corp will show a lower number of outstanding shares and a lower figure as Shareholders' equity.