Question

Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Murphy reacquired 30,000 of those shares at a cost of $15 per share and recoded the transaction using the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share and recognized a $ 50,000 gain on its income statement on May 20. Which of the following statements is correct?

A. Murphy's comprehensive income for the current year is correctly stated.
B. Murphy's net income for the current year is overstated
C. Murphy's net income for the current year is understated.
D. Murphy should have recognized as $50,000 loss on its income statement for the current year.

Answer 1

The correct answer is B. Murphy's net income for the current year is overstated

Step-by-step explanation:

Murphy Co. incorrectly recognized a gain from the issuance of the treasury stock and as such overstated Murphy's net income for the current period.