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

-$2,000,000

Step-by-step explanation:

Given the following :

Number of shares reacquired = 2 million

Price per share = $50

For the first time ;°

Number of shares sold = 1 million

Sales price per share = $51

Increase in Retained earnings : 1,000,000 × $(51 - 50) = 1,000,000 × $1 = $1, 000,000

Loss made from reacquizition:

Of the 2 million reacquired.

1,000,000 was sold at $47

Loss per share = ($50 - $47) = $3

Reduction in retained earning = (1,000,000 * $3) = - $3,000,000

Net total = $(1,000,000) - $3,000,000) = -$2,000,000