Crossroads Mall had 100,000 outstanding shares of common stock. On June 16, 2012

Question

Crossroads Mall had 100,000 outstanding shares of common stock. On June 16, 2012, Crossroads repurchased 20,000 shares of its own stock at $30 per share. On July 23, 2012, Crossroads resold 10,000 shares at $28 per share. What net effect did the repurchase and the resell of common stock have on the accounting equation?

A. Increase in assets and decrease in stockholders' equity.
B. Decrease in assets and increase in stockholders' equity.
C. Increase in assets and increase in stockholders' equity.
D. Decrease in assets and decrease in stockholders' equity.

Explanation / Answer

I'm pretty sure stock is considered owner's equity in the accounting equation. The fact that the company ended up with 10,000 more shares of stock than they started with, and that they were worth more money, means there was an increase in the company's equity. They ultimately paid more money out than they received; cash in bank is an asset, so the company's assets declined.

The stockholders saw the opposite of that; their overall share in the company (equity) decreased, and their cash (asset) increased; it's the first one.

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