At incorporation, Owl Co. issued 1,000,000 shares of its $1 par common stock at

Question

At incorporation, Owl Co. issued 1,000,000 shares of its $1 par common stock at $20 per share. During the current year, Owl acquired 30,000 shares of its common stock at a price of $25 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $22 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 Retained Earnings and Additional Paid-in Capital, respectively? No Effect & No Effect No Effect & Decrease Decrease & No Effect Decrease & Decrease At incorporation, Owl Co. issued 1,000,000 shares of its $1 par common stock at $20 per share. During the current year, Owl acquired 30,000 shares of its common stock at a price of $25 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $22 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 Retained Earnings and Additional Paid-in Capital, respectively? No Effect & No Effect No Effect & Decrease Decrease & No Effect Decrease & Decrease At incorporation, Owl Co. issued 1,000,000 shares of its $1 par common stock at $20 per share. During the current year, Owl acquired 30,000 shares of its common stock at a price of $25 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $22 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 Retained Earnings and Additional Paid-in Capital, respectively? No Effect & No Effect No Effect & Decrease Decrease & No Effect Decrease & Decrease

Explanation / Answer

The right answer is option (c) Decrease & No Effect.

Justification:

30000 shares will be accounted as treasury stock and same is bought at $25 per share.

30000 shares are sold at $22 per share. Therefore, there is a loss of $3 per share. As a result, Retained earnings will be reduced to that extent. And this transaction will not have any effect on Additional paid in capital. Therefore, the right answer is option (c) Decrease & No effect on retained earnings and additional paid in capital respectively.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.