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24 December, 04:58

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 CapitalA. No effect | No effectB. Decrease | DecreaseC. Decrease | No effectD. No effect | Decrease

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  1. 24 December, 05:22
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    The journal entry to record the re-issuance of the stock is shown below:

    Cash A/c Dr $240,000 (20,000 shares * $12)

    Retained earnings A/c Dr $80,000

    To Treasury stock $320,000

    (Being the re-issuance of the stock is recorded)

    The computation is shown below:

    For treasury stock

    = 20,000 shares * ($16 per share - $12 per share)

    = $80,000

    So as we can see the retained earnings is decreased by $80,000
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