Question

Satchel Inc purchases 10,000 shares of its own previously issued $10 par common stock for $290,000. Assuming the shares are held in the treasury with intent to reissue, what effect does this transaction have on a) net income, b) total assets, c) total paid-in-capital, and d) total stockholder’s equity?

Answer 1

Answer:

a. No effect

b. Decreases in total asset

c. No effect

d. Decreases in total stockholder equity

Explanation:

Given that

Number of shares purchased = 10,000 shares

Par value = $10

Common stock = $290,000

By using the above information, we can interpret that

a. There is no effect on the net income

b. The total asset is decreased by $290,000 as it reduces the cash balance for $290,000

c. There is no effect on the total paid-in-capital

d. Total stockholder equity is decreased by  $290,000

We assume that treasury stock is accounted for using the cash method