At its date of incorporation, McCarty Company issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, McCarty acquired 30,000 shares of its common stock at a price of $16 per share and accounted for them using the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained earning Additional paid-in capital (A) Decrease Decrease (B) Not effected Decrease (C) Decrease No effect (D) No effect No effect

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Business

August Davenport

27 January, 19:33

At its date of incorporation, McCarty Company issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, McCarty acquired 30,000 shares of its common stock at a price of $16 per share and accounted for them using the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained earning Additional paid-in capital (A) Decrease Decrease (B) Not effected Decrease (C) Decrease No effect (D) No effect No effect

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Kieran Chandler · Answer 1

(C) Decrease No effect

Explanation:

at purchase:

30,000 shares x 16 dollars each:

Treasury stock 480,000 debit

Cash 480,000 credit

--purchase of own share--

Then we will decrease retained earnings for the difference in the cash proceed on the sale and our treasury stock.

30,000 x 12 dollars = 360,000 cash proceeds

treasury stock 480,000

decrease in RE 120,000

cash 360,000 debit

retained earnings 120,000 debit

Treasury Stock 480,000 credit