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A company repurchased shares of its common stock for $19,000. The stock was initially issued for $12,000 and had a $5,000 par value. Which of the following statements correctly describes the effects of the repurchase of company's common stock shares?
A. Net income decreases by $7000.
B. Stockholders' equity decreases $19,000.
C. Net income increases by $7000.
D. Stockholders' equity increases $12,000.

Respuesta :

Answer: B

Stockholders' equity decreases $19,000.

Explanation:

Stockholders' equity is reduced by the $19,000 cost of purchasing the treasury stock.

The stockholder's equity will decrease by $19000 means the repurchase will diminish the owners' equity by the equivalent amount on the liabilities side.

How do stock repurchases affect shareholders' wealth?

A share buyback will decrease the firm's cash holdings — and consequently its entire asset base — by the amount of money spent on the balance sheet for the buyback.

The repurchase will diminish owners' equity by the equivalent amount on the liabilities side.

Hence, Option B. Stockholders' equity decreases $19,000 is the correct answer.

To learn more about repurchase of stock, refer to the link:

https://brainly.com/question/7627875

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