33E_3 - Horngren'S Financial And Managerial Accounting

Question

Determining the effect of stock dividends, stock splits, and treasury stock transactions

Many types of transactions may affect stockholders’ equity. Identify the effects of the following transactions on total stockholders’ equity. Each transaction is independent.

c. Purchase of 1,100 shares of \(0.50 par treasury stock at \)6 per share.

Step-by-Step Solution

Answer

Treasury stock will affect the shareholders’ equity as it will be reduced by the amount of shares repurchased by the corporation.

Step 1: Calculation of treasury stock

$\begin{array}{rcl}\mathbf{Treasury}\mathbf{ }\mathbf{stock}& \mathbf{=}& \mathbf{Number}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{Shares}\mathbf{\times }\mathbf{Price}\mathbf{ }\mathbf{Per}\mathbf{ }\mathbf{Shares}\\ & \mathbf{=}& \mathbf{1}\mathbf{,}\mathbf{100}\mathbf{\times }\mathbf{\$}\mathbf{6}\\ & \mathbf{=}& \mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{600}\end{array}$

Step 2: The effect of stock dividends, stock splits, and treasury stock transactions

Treasury shares reduced the amount in the stockholders' equity section of a corporation's balance sheet. Shareholders’ equity will be reduced with the amount $6,600.