Final answer:
Purchasing 40,000 shares of treasury stock at $30 per share decreases Amber Corporation's stockholders' equity by the total purchase amount of $1,200,000.
Step-by-step explanation:
When Amber Corporation purchases 40,000 shares of its own $20 par value common stock for $30 per share, the effect on stockholders' equity is a decrease. This transaction is known as treasury stock acquisition, where the company is buying back its own shares.
The total cost of the purchase is 40,000 shares multiplied by $30 per share, which equals $1,200,000.
Since this is a treasury stock transaction, it will reduce the total stockholders' equity by the amount paid to acquire the shares.
To calculate the effect on stockholders' equity, we need to account for both the par value of the stock and the amount paid over the par value.
The company's books will show a debit to treasury stock for the total purchase price of $1,200,000. This debit to treasury stock, which is a contra-equity account, will reduce total stockholders' equity.