Question

In January 2012, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.

Answer 1

a. decreased total stockholders' equity

Step-by-step explanation:

Treasury shares are the shares which are bought back by the issuing company, reducing the number of shares outstanding (not the number of issued shares).

The effect will be a decrease in the total stockholders' equity since the company is paying the withdrawing investment and this decreases the value "equity" of the company.