In January 2020, Sheffield Corp., a newly formed company, issued 10600 shares of its $10 par common stock for $15 per share. On July 1, 2020, Sheffield Corp. reacquired 1060 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares:

a. increased total stockholders' equity. b. decreased total stockholders' equity. c. did not change total stockholders' equity. d. decreased the number of issued shares.

Question

Anabelle Short

Business

22 May, 03:53

In January 2020, Sheffield Corp., a newly formed company, issued 10600 shares of its $10 par common stock for $15 per share. On July 1, 2020, Sheffield Corp. reacquired 1060 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares:

a. increased total stockholders' equity. b. decreased total stockholders' equity. c. did not change total stockholders' equity. d. decreased the number of issued shares.

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Answers (1)

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Camryn Lawrence · Answer 1

The correct option is B, decreased total stockholders' equity.

Explanation:

Acquisition of treasury shares implies that the company repurchased the shares by retrieving the shares from the shareholders and paying cash in lieu.

When a company repurchased its shares the total stockholders' equity by amount paid in repurchasing the shares.

From an accounting equation perspective, the cash parted with reduces the asset of the company as well as reduces the stockholders' total equity, hence it is a reduction on both sides of the equation.