Question

A corporation purchases 10,000 shares of its own $10 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity?
a. increase, $100,000
b. increase, $350,000
c. decrease, $100,000
d. decrease, $350,000

Answer 1

Answer:

Decrease, $350000.

Explanation:

Given: Corporation purchases 10000 shares for $35 per share.

Now, calculating cost of common stock.

Cost of common stock purchased = $10000\times 35= \ 350000$

∴ Cost of common stock purchased= $350000

∴ If there is increase in expense and dividend payout to common and preferred shareholder, it lead to decrease in stockholders´ equity.