Stocks and Transactions – Financial Accounting

Write a response to the following scenario:

Chen, Inc. purchases 1,000 shares of its own previously issued $5 per common stock for $12,000. Assuming the shares are held in the treasury, what effect does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total stockholders’ equity?

The treasury stock purchased in the above question was resold by Chen, Inc. for $15,000. What effect does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total stockholders’ equity?

Format your response consistent with APA guidelines.

 

 

 

 

…………………Answer Preview……………

Chen, Inc. purchases 1,000 shares of its own previously issued $5 per common stock for $12,000.

Assuming the shares are held in the treasury, what effect does this transaction have on;

 (a) Net income

Treasury stock is repurchased shares. For this reason, there is no effect on the net income. When recording treasury stock, a contra –equity account is created through a debit.

(b) Total assets

The purchase of 1000 shares will decrease the total assets of the organization. Thus there will be a decrease by $12,000.

(c) Total paid-in capital

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

(d) Total stockholders’ equity?

The stockholders’ equity will…..

APA

 

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