Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. As a result of this transaction, Refurbish's ______. (Check all that apply.)Multiple select question.stockholders' equity on the balance sheet will be $10,000 highertreasury stock on the balance sheet will equal $4,000stockholders' equity on the balance sheet will be $8,000 highernet income on the income statement will be $2,000 higher
Question
Refurbish, Inc. reissued 1,000 shares of its treasury stock for 12,000, which included the 8,000 cost of the 1,000 shares reissued. As a result of this transaction, Refurbish's ______. (Check all that apply.)Multiple select question.stockholders' equity on the balance sheet will be 10,000 highertreasury stock on the balance sheet will equal 8,000 highernet income on the income statement will be $2,000 higher
Solution
The correct answers are:
- Stockholders' equity on the balance sheet will be $10,000 higher
- Treasury stock on the balance sheet will equal $4,000
Here's why:
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When treasury stock is reissued, the stockholders' equity increases by the amount received from the reissuance. In this case, Refurbish, Inc. received $10,000 from the reissuance, so the stockholders' equity will increase by this amount.
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The balance of the Treasury Stock account decreases by the cost of the shares reissued. Prior to the reissuance, the balance was 8,000 cost of the 1,000 shares reissued. So, after the reissuance, the balance will be 8,000 = $4,000.
The net income on the income statement will not be affected by this transaction because the reissuance of treasury stock is a financing activity, not an operating activity. Therefore, it does not affect the company's net income.
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