Question

At its date of​ incorporation, McCarty Company issued​ 100,000 shares of its​ $10 par common stock at​ $11 per share. During the current​ year, McCarty acquired​ 30,000 shares of its common stock at a price of​ $16 per share and accounted for them using the cost method.​ Subsequently, these shares were reissued at a price of​ $12 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 the following​ accounts? Retained earning Additional paid-in capital(A) Decrease Decrease(B) Not effected Decrease(C) Decrease No effect(D) No effect No effect

Answer 1

Answer:

(C) Decrease No effect

Explanation:

at purchase:

30,000 shares x 16 dollars each:

Treasury stock  480,000 debit

              Cash              480,000 credit

--purchase of own share--

Then we will decrease retained earnings for the difference in the cash proceed on the sale and our treasury stock.

30,000 x 12 dollars = 360,000 cash proceeds

treasury stock             480,000

decrease in RE            120,000

cash                         360,000 debit

retained earnings    120,000 debit

        Treasury Stock                      480,000 credit