Question

Monet, Inc. purchases 1,000 shares of its own previously issued $5 par common stock for $11,000. Assuming the shares are held in the treasury, what effect does this transaction have on. (a) Net income select an option (b) Total assets select an option (c) Total paid-in capital select an option (d) Total stockholders’ equity select an option

Answer 1

Answer:

(a) none

(b) decrease by 11,000

(c) none

(d) decrease by 11,000

Explanation:

The journal entry to record the purchase of treasury stock will be as follow:

treasury stocks 11,000 debit

             cash                           11,000 credit

The treasury stock will be a contra-equity account. Will decrease the total stockholders equity by their cost.

Total assets decrease as cash is used to purchase the shares

It will not change the net income as none revenue or expense account is uded.