Which of the following statements is correct?
A) A treasury stock purchase for less than the amount of its original issue cost results in a decrease in total stockholders' equity.
B) A treasury stock purchase for less than the amount of its original issue cost results in an increase in total stockholders' equity.
C)A treasury stock purchase for an amount equal to the amount of its original issue cost results in no change to total stockholders' equity.
D)A treasury stock purchase for more than the amount of its original issue cost results in an increase in total stockholders' equity.

Question

Quizplus · Accepted Answer

When a company buys back its own stock (treasury stock), it will decrease the total number of outstanding shares. This should increase the value of each outstanding share and, potentially, increase the per-share price. However, if the treasury stock is repurchased for less than its original issue cost, it will result in a decrease in total stockholders' equity. This is because the difference between the original issue cost and the repurchase price is considered a loss and is subtracted from total stockholders' equity.

Which of the Following Statements Is Correct