Question

the basu group reacquired 2 million of its shares at $70 per share as treasury stock. last year, for the first time, basu sold 1 million treasury shares at $71 per share. if basu now sells the remaining 1 million treasury shares at $67 per share, by what amount will retained earnings decline?

Answer 1

The amount by which retained earnings will decline is $2 million.

Step-by-step explanation:

To determine the amount by which retained earnings will decline, we need to calculate the difference between the cost of acquiring the treasury shares and the total proceeds from selling those shares.

The cost of acquiring 2 million shares at $70 per share is $140 million (2 million shares x $70 per share). After selling 1 million treasury shares at $71 per share, Basu received $71 million (1 million shares x $71 per share).

Finally, when they sell the remaining 1 million treasury shares at $67 per share, they will receive $67 million (1 million shares x $67 per share). Therefore, the amount by which retained earnings will decline is $140 million (cost of acquiring) - $71 million (proceeds from the first sale) - $67 million (proceeds from the second sale) = $2 million.