Question

In 2019, Winn, Inc. issued $1 par common stock for $35 per share. No other common stock transactions occurred until July 31, 2021, 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. 2021 net income is decreased.
b. Additional paid-in capital is decreased.
c. 2021 net income is increased.
d. Retained earnings is increased.

Answer 1

b. Additional paid-in capital is decreased

Step-by-step explanation:

The entry to record acquisition and retirement is:

Debit Credit

Common stock $1

Paid-in capital—excess of par $34

Paid-in capital—share repurchase $5

Cash $30

Conclusion: Additional paid-in capital is decreased.