Question

A corporation purchases 35000 shares of its own $20 par common stock for $30 per share, recording it at cost. What will be the effect on total stockholders’ equity? Decrease by $700000. Decrease by $1050000. Decrease by $350000. Increase by $1050000.

Answer 1

Decrease by $1,050,000

Step-by-step explanation:

Data provided as per the question

Purchase shares = 35,000

Common stock per share = $30

The computation of total stockholders’ equity is shown below:-

Treasury stock = Purchase shares × Common stock per share

= 35,000 × $30

= $1,050,000

Shareholder's Equity will be reduced by $1,050,000. So, for calculating the shareholder equity we simply applied the above formula.