Question

Horton Industries’ shareholders’ equity included 100 million shares of $1 par common stock and a balance in paid-in capital—excess of par of $900 million. Assuming that Horton retires shares it reacquires (restores their status to that of authorized but unissued shares), by what amount will Horton’s total paid-in capital decline if it reacquires 2 million shares at $8.50 per share?

Answer 1

Answer:

The common stock would decline by $2 million

The paid in capital in excess of par would decline by $15 million

The share capital would decline by $17 million

Explanation:

The balance in  common stock would decline by the par value of the 2 million shares reacquired in the year,that is 2 million*$1=$2,000,000

However balance in the paid-in share capital in excess of par would decline by $7.5 for each of the 2 million shares reacquired i.e 2 million *$7.5=$15,000,000

However the total reduction in  share capital of Horton Industries is the sum of the reduction in common stock of $2 million and the reduction in paid-in capital in excess of par of $15 million i,e $17 million