Question

As of December 31, 2016, Warner Corporation reported the following: > Dividends Payable: $20,000 > Treasury Stock: $600,000 > APIC: Treasury Stock: $20,000 > APIC: Common Stock: $4,000,000 > Retained Earnings: $3,000,000 During 2017, half of the Treasury Stock was resold for $240,000. The sale of half of the treasury stock would cause Retained Earnings to change by what amount?

Answer 1

The Retained Earnings will change by $0.

Step-by-step explanation:

Selling treasury stock does not affect the amount of the Retained Earnings. What actually drive the value of the Retained Earnings is the difference between Revenue and Costs of operations and the distributions made to the stockholders. Retained Earnings represent the amount of net income that is not distributed to the stockholders. In other words, retained earnings result from the difference between the net income generated by the company over the years and the amount of net income paid out to stockholders in the form of dividends.