Question

In previous years, Cox Transport reacquired 2 million treasury shares at $24 per share and, later, 1 million treasury shares at $27 per share. If Cox now sells 2 million treasury shares at $29 per share and determines cost as the weighted-average cost of treasury shares, by what amount will Cox’s paid-in capital - share repurchase increase?

Answer 1

the increase in the paid in capital is $4 million

Step-by-step explanation:

The computation of increase in paid in capital is shown below:

The weighted ratio is 2:1 i.e. 66.67%, 33.33%

Now weighted average price is

= (0.6667 × $24) + (0.3333 × $27)

= $25

Now the increase in paid in capital is

= ($29 - $25) × 1 million

= $4 million

Hence, the increase in the paid in capital is $4 million