Treasury stock transactions might cause: a. An increase or a decrease in the par amount per share. b. An increase or a decrease in the amount of net income. c. A decrease in the balance of retained earnings. d. An increase in the balance of retained earnings.

Question

Business

Terrence Schmidt

13 January, 00:07

Treasury stock transactions might cause: a. An increase or a decrease in the par amount per share. b. An increase or a decrease in the amount of net income. c. A decrease in the balance of retained earnings. d. An increase in the balance of retained earnings.

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Answers (2)

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Kaylin West · Answer 1

C) A decrease in the balance of retained earnings.

D) An increase in the balance of retained earnings.

Explanation:

Treasury stocks are reported as a contra equity account, since they have a debit balance which reduces stockholders' equity.

If treasury stocks are sold, this means that the debit balance decreases and stockholders' equity balance increases. On the other hand, if treasury stocks increase through repurchase of common stock, the debit balance will increase, decreasing the stockholders' equity.

Kylie David · Answer 2

(C) A decrease in the balance of retained earnings.

The cost of treasury stock is subtracted from retained earnings, reducing amounts the company can distribute to stockholders as dividends.

Explanation:

Retained earnings is the cumulative total of earnings that have yet to be paid to shareholders. Retained earnings are affected by any increases or decreases in net income and dividends paid t share holders.