Question

In previous years, Cox Transport reacquired 4 million treasury shares at $22 per share and, later, 2 million treasury shares at $25 per share. If Cox now sells 2 million treasury shares at $27 per share and determines cost as the weighted-average cost of treasury shares, by what amount will Cox’s paid-in capital - share repurchase increase? (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

Answer:

$8 million

Explanation:

Weighted-average cost = [(4,000,000 × $22) + (2,000,000 × $25)] ÷ (4,000,000 + 2,000,000) = $23

Increase in paid-in capital - share repurchase per share = selling price —Weighted-average cost = $27 - $23 = $4

Amount of increase in paid-in capital—share repurchase = Number of treasury shares × $4 = 2 million × $4 = $8 million

Therefore, Cox’s paid-in capital - share repurchase will increase by $8 million.