Final answer:
The repurchase of 1,000 shares of $1 par value common stock for $8,000 decreases both assets (cash) and equity (as treasury stock) in the company's accounting equation.
Step-by-step explanation:
When REPURCHASED 1,000 shares of its $1 par value COMMON STOCK for $8,000, the effect of this transaction on the company's accounting equation includes:
- Decrease in assets (specifically, cash).
- Decrease in equity (due to a reduction in the number of outstanding shares, also known as treasury stock).
This transaction reduces the company's assets because cash is being used to buy back the stock. Additionally, shareholders' equity decreases because treasury shares do not count as part of the equity available to shareholders.
The repurchase of common stock by Mega Corporation will result in a decrease in two areas of the accounting equation: decrease in stockholders' equity and decrease in cash.
When Mega Corporation repurchases its own shares, it reduces the amount of money shareholders have invested in the company, which decreases stockholders' equity. Additionally, the company uses its cash to buy back the shares, resulting in a decrease in cash on the asset side of the accounting equation.