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?

Treasury stocks are repurchased or buybacks from stockholders that may have never been publicly issued. Treasury stock share do not pay dividends nor do they have voting rights. Whenever a company purchases treasury stocks, the assets are decreased because the cash or other assets are essentially swapped out for the treasury stock. Although the corporation can increase their return on equity by purchasing its own stock, their net income will not change. The paid in capital is reduced and shown in the balance sheet.

(a) No effect nor change in net income (b) Total assets will be decreased by $12,000.00 (c) Treasury stock reduces retained earning, therefore there will be no effect nor change on total paid in capital (d) The total stock holder’s equity will decrease by $12,000.00

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?

In this example, the assets and equity will decrease because of purchasing from the common stock, however the total paid in capital will not be affected. The paid in capital will be added and shown on the balance sheet under the total stock holder’s equity.

(a) There will be no change nor effect in net income (b) The total assets will increase by $15,000.00 (c) The total paid in capital will increase by $3,000.00 (d) The stock holder’s equity will increase by