Horton Industries' shareholders' equity included 100 million shares of $1 par common stock and a balance in paid-in capital-excess of par of $900 million. Assuming that Horton retires shares it reacquires (restores their status to that of authorized but unissued shares), by what amount will Horton's total paid-in capital decline if it reacquires 2 million shares at $8.50 per share?

Question

Darren Esparza

Business

14 March, 08:22

Horton Industries' shareholders' equity included 100 million shares of $1 par common stock and a balance in paid-in capital-excess of par of $900 million. Assuming that Horton retires shares it reacquires (restores their status to that of authorized but unissued shares), by what amount will Horton's total paid-in capital decline if it reacquires 2 million shares at $8.50 per share?

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Jaylan Levy · Answer 1

The common stock would decline by $2 million

The paid in capital in excess of par would decline by $15 million

The share capital would decline by $17 million

Explanation:

The balance in common stock would decline by the par value of the 2 million shares reacquired in the year, that is 2 million*$1=$2,000,000

However balance in the paid-in share capital in excess of par would decline by $7.5 for each of the 2 million shares reacquired i. e 2 million * $7.5=$15,000,000

However the total reduction in share capital of Horton Industries is the sum of the reduction in common stock of $2 million and the reduction in paid-in capital in excess of par of $15 million i, e $17 million