Question

Q 11.5: A corporation purchases 4,000 shares of its own $5 par common stock for $8 per share, recording it at cost. What will be the effect on total stockholders' equity?

Answer 1

Answer:

decrease of 32,000 dollars

Explanation:

the treasury sotck are recorded at cost:

4,000 shares x $8 per share = $32,000

the treasury stock is a contra.equity account that decreases the total stockholders' equity

As this shares are no longer outstading they are held by the firm thus, the capital fund of the firm are lower.

Also notice asset decrease as well because we use cash to acquire them.