Question

In 2019, Winn, Inc. issued $1 par common stock for $35 per share. No other common stock transactions occurred until July 31, 2021, when Winn acquired some of the issued shares for $30 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?
a. 2021 net income is decreased.
b. Additional paid-in capital is decreased.
c. 2021 net income is increased.
d. Retained earnings is increased.

Answer 1

Answer:

b. Additional paid-in capital is decreased

Explanation:

The entry to record acquisition and retirement is:

                                                                 Debit          Credit

Common stock                                           $1  

Paid-in capital—excess of par                  $34  

    Paid-in capital—share repurchase                        $5

    Cash                                                                  $30

Conclusion: Additional paid-in capital is decreased.