Question

Question 4 1 out of 1 points In 2016, Winn, Inc., issued $1 par common stock for $35 per share. No other common stock transactions occurred until July 31, 2018, 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? Selected Answer: Additional paid-in capital is decreased. Answers: Retained earnings is increased. 2018 net income is decreased. Additional paid-in capital is decreased. 2018 net income is increased. Response Feedback: The entries to record the stock issuance and subsequent acquisition and retirement (per share) are as follows: 351 Issuance Cash Common Paid-in capital-excess of par Retirement Common stock Paid-in capital-excess of par Paid-in capital-share repurchase Cash 30 The net result is a decrease in additional paid-in capital of $29 per share retired.

As you look at Paid-In-Capital-excess of Par and Paid-In-Capital-share repurchases; are these two terms the same T-account or two different T-accounts?

Answer 1

Journal entry to issue shares

Cash account....................................Debit $35

To Common stock account..............Credit $1

To Paid-in capital in excess of par....credit $34

Journal entry to acquire shares and retiring the shares

Common stock account........................Debit $1

paid in capital account.........................Debit $34

To Paid in capital share repurchases credit $5

To cash account.................................Credit $30

If we break the transactions

Common stock account.........debit $1

Paid in capital account...........Debit $29

To cash account..................Credit $30

Balance $5 in paid up capital is transferred to Paid in capital share repurchases because it is the gain in the hands of the company

Paid in capital account..............Debit $5

To Paid in capital share repurchases credit $5

These two are two different accounts. Paid in capital is the excess capital on issue and the other is the gain realized on retirement of stock so separate account to be created Paid in capital share repurchases account

Additional paid-in capital is decreased