Question

At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Explain and show your work.Retained Earnings Additional Paid-in Capitala. Decrease Decreaseb. No effect Decreasec. Decrease No effectd. No effect No effect

Answer 1

What effect does the reissuance of the stock have on the following accounts?

Retained Earnings

Additional Paid-in Capital

• b. No effect (retained earnings); Decrease (additional paid in capital)

Step-by-step explanation:

Issuance of stocks at incorporation date:

Dr Cash 1,100,000

Cr Common stock 1,000,000

Cr Additional paid in capital 100,000

Purchase of treasury stock:

Dr Treasury stock 320,000

Cr Cash 320,000

Re-issuance of treasury stocks:

Dr Cash 240,000

Dr Additional paid in capital 80,000

Cr Treasury stock 320,000