Question

Amber Corporation purchases 40,000 shares of its own $20 par value common stock for $80 per share. What will be the effect on stockholders' equity?

a. decrease $800,000
b. increase $3,200,000
c. increase $800,000
d. decrease $3,200,000

Answer 1

Answer:d. decrease $3,200,000

Step-by-step explanation:

Outstanding shares = 40,000

Price per share = $80

Amount to be paid to purchase its own shares = Number of outstanding shares x Price per share

= 40,000 x 80

= $3,200,000

When a company buys its own share , it is termed as Treasury stock, Having known that Treasury stock tends to decrease stockholders equity.

The stockholders equity of Amber Corporation will be decreased by $3,200,000.