A corporation purchases 20,000 shares of its own $20 par common stock for $35 per share, recording it at cost.What will be the effect on total stockholders' equity?
A)Increase by $700,000.
B)Decrease by $400,000.
C)Decrease by $700,000.
D)Decrease by $300,000.

Question

Quizplus · Accepted Answer

When a corporation purchases its own stock, it is recorded as treasury stock, which reduces total stockholders' equity by the cost of the purchase. The cost is 20,000 shares x $35 = $700,000, so stockholders' equity decreases by $700,000.

A Corporation Purchases 20,000 Shares of Its Own $20 Par