Question

Treasury stock that was purchased for $2,500 is sold for $3,000. As a result of these two transactions combined, a.income will be increased by $500. b.stockholders' equity will be increased by $3,000. c.stockholders' equity will be increased by $500. d.stockholders' equity will not change, because the amount of authorized stock has not changed.

Answer 1

The stockholder's equity will be increased by $500

Step-by-step explanation:

While stockholders equity is the amount of assets available to shareholders after all liabilities have been settled , treasury stock is the stock that is bought back by the issuing organisation with the aim of reducing the number of outstanding stock in the open market.

Looking at the scenario given , it was an indirect way of raising fund and increasing the equity of the stockholders equity as the treasury stock was later resold at a higher price.

Therefore , the stockholder's equity increases by 3,000- 2500 = 500