Question

Listed below are various transactions that a company incurred during the current year. select the impact on total stockholders' equity for each scenario. specifically state whether stockholders' equity would increase (i), decrease (d), or have no effect (ne) as a result of each transaction listed below. consider each transaction independently.

Answer 1

1. No par common stock is issued.

• I) INCREASE STOCKHOLDERS' EQUITY SINCE COMMON STOCK ACCOUNT WILL INCREASE.

2. Treasury stock is sold at cost for cash (assume the cost method).

• I) INCREASE STOCKHOLDERS' EQUITY SINCE TREASURY STOCK IS A CONTRA EQUITY ACCOUNT THAT REDUCES TOTAL EQUITY, AND SINCE THE STOCKS WERE HOLD, EQUITY WILL INCREASE.

3. Treasury shares of preferred stock are purchased (assume the cost method).

• D) DECREASE STOCKHOLDERS' EQUITY SINCE TREASURY STOCK IS A CONTRA EQUITY ACCOUNT THAT REDUCES TOTAL EQUITY.

4. A payment date occurs for a cash dividend.

• NE) NO EFFECT ON EQUITY, SINCE EQUITY HAD ALREADY DECREASED ON THE DAY THAT THE DIVIDENDS WERE DECLARED.