Answer:
C) $415,000
Explanation:
The journal entry to record the repurchase of treasury stocks:
Dr Treasury stock 125,000
Dr Additional paid-in capital in excess of par value 525,000
Cr Cash 650,000
After this transaction, the account balances should be:
Common stock $540,000 - $125,000 = $415,000
Additional paid-in capital = $750,000 - $525,000 = $225,000
Retained earnings = $900,000
Treasury stock = $650,000 + $125,000 = $775,000
After the stocks are cancelled, only treasury stock will be affected, since it will be decrease to $650,000.
Treasury stock is a contra equity account but is reported in the balance sheet as an asset. It decreases the value of common stock.