Dunavant Service Company views share repurchases as treasury stock. Dunavant purchased shares and then later sold the shares at more than their acquisition price. What is the effect of the sale of the treasury stock on each of the following? Retained earnings - Paid-in capitala. increase - increaseb. increase - no effectc. no effect - no effectd. no effect - increase

The correct answer is Retained earnings: no effect; Paid-in capital: increase

Explanation:

The nominal value of a share establishes a limit price and no company can issue its shares at a lower price, although already issued, the price of the shares is subject to the market price. When capitalization of a corporation is required, it must be defined whether the capital will be obtained from current shareholders or new shareholders. If it is one of the existing ones, there are two options: either the cash contribution is received or the system of delivering dividends payable through shares is used, in which case, it should be clarified whether the shares delivered are preferential or privileged.