At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par

Question

At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 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?

Retained Earnings        Additional Paid-in Capital

Decrease                          No effect

PLEASE SHOW ME HOW?

Explanation / Answer

Journal entry: Cash 240000 =20000*12 Retained earnings 80000 =20000*(16-12)         Treasury stock 320000 =20000*16 So Retained Earnings decreases by $80000

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