Indicate whether each of the following statements about stockholders' equity is true or false. ________ a) The balance in the treasury stock account increases total stockholders' equity.________ b) A company may acquire treasury stock in an effort to increase the market price of its stock.________ c) The declaration and distribution of a stock dividend reduces retained earnings.________ d) A 2-for-1 stock split probably will double the monetary value of each investor's holdings on the date the split takes effect.________ e) If treasury stock that had been acquired by a company for $50 per share is resold for $40 per share, total assets and stockholders' equity will decrease.

Question

What will be an ideal response?

Answer 1

a) F b) T c) T d) F e) F

a) This is false. Treasury stock is a contra equity account. It is deducted from the other equity accounts in determining total stockholders' equity. b) This is true. Acquiring treasury stock may help drive up its market price.
c) This is true. Dividends reduce retained earnings.
d) This is false. Each investor's holdings will be the same value as before the stock split.
e) This is false. Assets will increase, retained earnings will decrease by the difference between the reissue price and the carrying value of the treasury stock, and treasury stock will decrease by the total reissue price, causing total stockholders' equity to increase.