Question

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?

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

Answer 1

The answer is c. Increase in assests and increase in stockholder's equity.

Step-by-step explanation:

The accounting entries Crossroads Mall will have for the sell of repurchased shares as followed:

Dr Cash 280,000

Dr Paid-up capital and/or Retained Earning 20,000

Cr Common share 300,000

( further calculation notes: sold of 10,000 repurchased shares at $28 brings about 280,000 in cash; while common shares will be recorded at the repurchased price, that is : 30 x 10,000)

Thus, the net effect of the sale of repurchased shares will be the Increase in Cash ( assets) of $280,000 and the Increase in Stock Equity of the same amount, that is, $280,000.