178k views
0 votes
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 $32 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?

a. 2018 net income is decreased.
b. Additional paid-in capital is decreased.
c. 2018 net income is increased.
d. Retained earnings is increased.

User Disklosr
by
7.7k points

1 Answer

3 votes

Answer: b. Additional paid-in capital is decreased.

Step-by-step explanation:

Assume Winn sold 100 shares.

The entry would have recorded Common stock at $100 because the par value is $1.

Additional paid-in capital would have been:

= (35 - 1) * 100

= $3,400

When the stock was now required, it was required at $32. Assuming 50 were reacquired:

Common stock would be = 100 - 50 = $50

Additional paid-in capital would be = 3,400 - ((32 - 1) * 50) = $1,850

Additional paid-in capital would therefore decrease when the shares are reacquired.

User Alexander Grosul
by
7.9k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.