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Crossroads Mall had 100,000 outstanding shares of common stock. On June 16, 2018, Crossroads repurchased 20,000 shares of its own stock at $30 per share. On July 23, 2018, 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?

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Answer:

The net effect of the repurchase and reselling of the common stock will decrease the assets and stockholders' equity.

Explanation:

June 16, 2018 (repurchase of 20,000 stocks)

  • Dr Common Stock account 600,000
  • Cr Cash account 600,000

July 23, 2018 (reselling of 10,000 stocks)

  • Dr Cash account 280,000
  • Dr Paid-in Capital or Retained Earnings account 20,000
  • Cr Common Stock account 300,000

After the repurchase and reselling of the common stock, the total assets decreased by $320,000 (cash account $280,000 - $600,000).

Equity also decreased by $320,000:

  • Common stock account decreased by $300,000 (= $300,000 - $600,000)
  • Paid-in capital or retained earnings account decreased by $20,000

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