Question

In 2009, Winn, Inc. issued $1 par value common stock for $35 per share. No other common stock transactions occurred until July 31, 2011, when Winn acquired some of the issued shares for $30 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?

A) Increase in total shareholders' equity
B) Decrease in total shareholders' equity
C) No effect on total shareholders' equity
D) Increase in retained earnings

Answer 1

The acquisition and retirement of common stock by Winn, Inc. results in a decrease in total shareholders' equity.

Step-by-step explanation:

The effect of the acquisition and retirement of the common stock by Winn, Inc. is a decrease in total shareholders' equity.

When the company retires its own stock at a price lower than the original issuance price, it results in a reduction in shareholders' equity. The difference between the original issuance price ($35) and the retirement price ($30) is considered a loss, which decreases the overall value of the shareholders' equity.

Therefore, option B) Decrease in total shareholders' equity is the correct statement.