Question

During 2017, half of the treasury stock was resold for $264,000; net income was $720,000; cash dividends declared were $1,620,000; and stock dividends declared were $620,000.
The 2017 sale of half of the treasury stock would:__________
Reduce retained earnings by $96,000
Reduce retained earnings by $64,000
Increase total shareholders' equity by $360,000
Reduce income before tax by $96,000

Answer 1

Answer:

The answer is "Reduce retained earnings by $\ 64,000$"

Explanation:

cost $= \frac{720000}{2} = 360000$

The difference between the cost and sale $= 360000-264000 = 96000$

First, buyback shares -payment of capital are debited = 32000

The rest is retained earnings adjusted