What would be the impact on the accounting equation when a company acquires treasury stock? A

Accounting Dec 16, 2020

What would be the impact on the accounting equation when a company acquires treasury stock?

A. Decrease assets and decrease stockholders' equity

B. Decrease assets and increase stockholders' equity

C. No effect on the accounting equation

D. Increase assets and increase stockholders' equity

Expert Solution

Answer choice: A. Decrease assets and decrease stockholder's equity

Explanation:

When a company acquires treasury stock they record the following journal entry:

Date	General Journal	Debit	Credit
	Treasury Stock	XX
	Cash		XX

Treasury stock represents common stock that is repurchased by the corporation. Treasury stock has a debit balance because it is a contra equity account and reduces the total balance in stockholder's equity. Cash is an asset account that is reduced when treasury stock is acquired.

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