Asked by Jennifer Gonzalez on May 04, 2024
Verified
Which of the following statements correctly describes a treasury stock transaction?
A) A treasury stock purchase for less than the amount of the stock's original issue cost results in a decrease in total stockholders' equity.
B) A treasury stock purchase for less than the amount of the stock's original issue cost results in an increase in total stockholders' equity.
C) A treasury stock purchase for an amount equal to the amount of the stock's original issue cost results in no change to total stockholders' equity.
D) A treasury stock purchase for more than the amount of the stock's original issue cost results in an increase in total stockholders' equity.
Treasury Stock
Stocks that a company originally issued and then bought back, which decreases the number of shares available for trade in the market.
Stockholders' Equity
The residual interest in the assets of a corporation that remains after deducting its liabilities, representing ownership interest.
Issue Cost
Expenses associated with the issuance of new securities, including legal, accounting, and printing costs.
- Gain insight into the principle and economic effect of dealing with treasury stock.
Verified Answer
RG
Resheemha GermanMay 10, 2024
Final Answer :
A
Explanation :
When a company purchases its own stock as treasury stock for less than the original issue cost, it results in a decrease in total stockholders' equity because the company is spending less money to buy back its own stock than what it received when it originally issued the stock.
Learning Objectives
- Gain insight into the principle and economic effect of dealing with treasury stock.