Question

The Jennings Group reacquired 2 million of its shares at $50 per share as treasury stock. Last year, for the first time, Jennings sold 1 million treasury shares at $51 per share. If Jennings now sells the remaining 1 million treasury shares at $47 per share, by what amount will retained earnings decline

Answer 1

Answer: $2,000,000

Step-by-step explanation:

Treasury stock is simply a stock that is bought back by a company while retained earnings are cumulative profit that a company makes after dividends has been paid out.

From the question, gain per share will be: $51 - $50 = $1

Therefore, there will be increase in retained earnings by $1 million.

The deficit per share will be:

= $47 - $50 = $-3

The amount that is declined in the retained earnings will now be:

= $-3 × 1,000,000

= $-3 million

The amount by which retained earnings will decline will be:

= $3,000,000 - $1,000,000

= $2,000,000