Question

A firm repurchased some of its outstanding common stock in the current year. What impact does this transaction have on the financial statements?

	A.	Cash increases and net income increases
	B.	Cash increases and shareholders' equity increases
	C.	Cash decreases and net income decreases
	D.	Cash decreases and shareholders' equity decreases
	E.	This transaction does not impact the financial statements

Answer 1

The repurchase of outstanding common shares from the market is definitely impact its financial statements. The repurchase of common shares is reduce both the cash and shareholders equity.

For example the company repurchase $750,500 shares it will lead to reduce the cash by $750,500 and reduce shareholders equity.

Option A INCORRECT

Because repurchase of shares only lead to decrease cash and it doesn't impact the net income.

Option B INCORRECT

Because repurchase lead to decrease shareholders equity and cash

Option C is INCORRECT

Repurchase does not impact net income but it decrease cash

Option D CORRECT

Repurchase of common shares is lead to decrease cash and shareholders equity

Option E INCORRECT

Because the Repurchase of common shares will impact financial statements. It will reduce the cash and shareholders equity in balance sheet.

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