At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by 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 Earnings | Additional Paid-in CapitalA. No effect | No effectB. Decrease | DecreaseC. Decrease | No effectD. No effect | Decrease

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Business

Diamond Zuniga

31 December, 00:57

At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by 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 Earnings | Additional Paid-in CapitalA. No effect | No effectB. Decrease | DecreaseC. Decrease | No effectD. No effect | Decrease

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Jayden Aguilar · Answer 1

The journal entry to record the re-issuance of the stock is shown below:

Cash A/c Dr $240,000 (20,000 shares * $12)

Retained earnings A/c Dr $80,000

To Treasury stock $320,000

(Being the re-issuance of the stock is recorded)

The computation is shown below:

For treasury stock

= 20,000 shares * ($16 per share - $12 per share)

= $80,000

So as we can see the retained earnings is decreased by $80,000