Question

A corporation purchases 15,000 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. Increase by $525,000.b. Decrease by $300,000.c. Decrease by $525,000.d. Decrease by $225,000.

Answer 1

Answer: Option (c) is correct.

Explanation:

Given that,

A corporation purchases = 15,000 shares of its own $20 par

Common stock = $35 per share

Effect on total stockholders' equity:

As purchase of own stock will reduce total stockholders equity by

= Shares purchased × Per share price

= 15,000 × $35

= $525,000

Therefore, total stockholders' equity decreases by $525,000.