cf mock question

CFA Level I Equities
#1

[question removed by admin]

Can someone please explain this answer. So one sells land and uses the cash to purchase back stock. When one does that, does the net income get affected somehow? can there be a gain on the stock purchase - understand it is treasury stock - but unsure how the gains/losses there are handled… assume no income impact, then how does the equity go down (the point in the answer about asset turnover doesnt make sense, how does that relate to equity?)… so buying back shares decreases equity? Can someone please explain… Thanks!

#2

Hi mainhoon,

A = L + E

When you buy back stocks using cash, A decreases. To keep the equation balance, E must decrease as well.

In a stock repurchase there are no gains or losses, regardless of whether purchase price is greater, equal or less than BVPS. It simply that Assets and Equity decrease by the same amount