Is this right?
At its date of incorporation, Glean, Inc., issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Glean acquired 30,000 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?
A. A decrease in both retained earnings and additional paid-in capital
B. No effect on retained earnings and a decrease in additional paid-in capital
C. A decrease in retained earnings and no effect on additional paid-in capital
D. No effect on retained earnings or additional paid-in capital
Journal entry to record reacquisition of 30,000 shares at $16 per share using the cost method:
DR Treasury Shares 480,000
CR Cash 480,000
Journal entry to record sale of treasury shares (30,000 shares at $12 per share):
DR Cash 360,000
DR Paid-in Capital 100,000
DR Retained Earnings 20,000
CR Treasury Shares 480,000
When the initial issue of public stock was made, the 100,000 shares sold at $1 above the par value of $10. This resulted in a balance of $100,000 in the additional paid-in capital account. The $120,000 loss on sale should first be used to reduce additional paid-in capital to zero ($100,000) and debit the remainder (20,000) to retained earnings. Treasury stock transactions should never impact the net income for the current year.
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