The balance sheet of FIFA Cup Company included the following shareholders\' equi

Question

The balance sheet of FIFA Cup Company included the following shareholders' equity section at December 31, 2018:

On January 5, 2019, FIFA purchased and retired 2 million shares for $9 million. Immediately after retirement of the shares, the balances in the paid-in capital—excess of par and retained earnings accounts are:`
  

Option A

Option B

Option C

Option D

($ in millions) Common stock ($1 par, authorized 200 million shares, issued and outstanding 180 million shares) $ 180 Paid-in capital—excess of par 1,080 Retained earnings 560 Total shareholders' equity $ 1,820

Explanation / Answer

Answer is option (A). Paid-in capital—excess of par $1068 and Retained earnings $556

Explanation;

Following journal entry will be passed at the time of purchase & retirement of 2 million shares;

Common Stock (2 million * $1)

$2

Paid in capital-excess of par (2 million * $6)

$12

Retained earnings (2 million * 2)

$4

     Cash

$18

Thus’ balance in paid in capital-excess of par and balance in retained earnings will be calculated as follow;

Balance in paid in capital-excess of par ($1080 – $12) = $1068 million

Balance in retained earnings ($560 – $4) = $556 million

Common Stock (2 million * $1)

$2

Paid in capital-excess of par (2 million * $6)

$12

Retained earnings (2 million * 2)

$4

     Cash

$18

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