Question

In previous years, Cox Transport reacquired 2 million treasury shares at $22 per share and, later, 1 million treasury shares at $28 per share. By what amount will Cox’s paid-in capital—share repurchase increase if it now sells 2 million treasury shares at $32 per share and determines cost as the weighted-average cost of treasury shares?

Answer 1

Answer:

24 million shares  ; $16 million

Explanation:

The computation of the weightage number of treasury shares are shown below:

             Number of shares       Price       Total

                   2                              $22         $44 million

                   1                               $28         $28 million

Total           3                                               $72 million

So, the weighted average number of shares would be

= $72 ÷ 3 = 24 million shares

Now the journal entry would be

Cash A/c Dr $64 million                  (2 million treasury shares × $32)

          To Paid in capital - share repurchase A/c $16 million

          To Treasury stock $48 million    (24 million treasury shares × $2)

(Being the treasury shares are sold)