Question

Satchel Inc. purchases 10,000 shares of its own previously issued \(10 par common stock for \)290,000. Assuming the shares are held in the treasury with intent to reissue, what effect does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total stockholders’ equity?

Short answer

Treasury stock poses different effects on different transactions. Sometimes it reduces with it, and in some cases, it has no impact on the transaction.

Step-by-step solution

Meaning of Treasury Stock

Treasury shares are those that are on the issuing company's balance sheet. For instance, if a firm issues shares and subsequently buys back a fixed number of them and accepts them on its balance sheet, they are referred to as treasury shares.

Effect of Transaction 

Treasury Stock is a type of equity account for stockholders, whereas Cash is a type of asset. As a result, this transaction has:

1. Net Income

It has no impacton net income.

2. Total Assets

It reduces total assets.

3. Total Paid-in Capital

It has no impacton total paid-in capital.

4. Total Stockholders’ Equity

Reduces total stockholders' equity.