The balance sheet of Bluesky Services included the following shareholders\' equi

Question

The balance sheet of Bluesky Services included the following shareholders' equity section at December 31, 2017:

Common stock ($1 par value, authorized 60 million

shares, issued and outstanding 40 million shares)                $ 40

Paid-in capital --- excess of par                                                200

Retained earnings                                                                        60

            Total shareholders’ equity                                          $300

On January 4, 2018, Bluesky purchased and retired 1 million shares for $8 million. Immediately after retirement of the shares, the balances in the paid-in capital– excess of par and retained earnings accounts are:

a) Paid-in capital --- excess of par: $200M; Retained earnings: $58M

b) Paid-in capital --- excess of par: $198M; Retained earnings: $55M

c) Paid-in capital --- excess of par: $193M; Retained earnings: $52M

d) Paid-in capital --- excess of par: $195M; Retained earnings: $58M

a) Paid-in capital --- excess of par: $200M; Retained earnings: $58M

b) Paid-in capital --- excess of par: $198M; Retained earnings: $55M

c) Paid-in capital --- excess of par: $193M; Retained earnings: $52M

d) Paid-in capital --- excess of par: $195M; Retained earnings: $58M

Explanation / Answer

Immediately after retirement of the shares, the balances in the paid-in capital– excess of par and retained earnings accounts are:

d) Paid-in capital --- excess of par: $195M; Retained earnings: $58

Working:

Date Particulars L.F Amount ($) Amount ($) 2018 Jan-04 Common Stock (1M*1) 1 Additional paid in capital (1M*5) 5 Retained earning (1M*2) 2 Balance in Retained earning (60-2 =58) Balance in additional paid in capital (200-5= 195)

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