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29 March, 12:24

Satchel Inc purchases 10,000 shares of its own previously issued $10 par common stock for $290,000. Assuming the shares are held in the treasury with intent to reissue, what effect does this transaction have on a) net income, b) total assets, c) total paid-in-capital, and d) total stockholder's equity?

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  1. 29 March, 12:32
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    a. No effect

    b. Decreases in total asset

    c. No effect

    d. Decreases in total stockholder equity

    Explanation:

    Given that

    Number of shares purchased = 10,000 shares

    Par value = $10

    Common stock = $290,000

    By using the above information, we can interpret that

    a. There is no effect on the net income

    b. The total asset is decreased by $290,000 as it reduces the cash balance for $290,000

    c. There is no effect on the total paid-in-capital

    d. Total stockholder equity is decreased by $290,000

    We assume that treasury stock is accounted for using the cash method
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