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At December 31, 2016, the balance in Helsinki Ltd.'s retained earnings account was $420,000.During 2017, Helsinki had the following transactions:
Acquired 5,000 treasury shares at $27 a share.The shares are no par and had originally been issued for $24 per share.There had been no previous treasury shares transactions.
Sold the 5,000 treasury shares at $32 a share.
Reported net income of $150,000.
-Instead, assume Helsinki cancelled the 5,000 shares when it acquired them.The balance in retained earnings at December 31, 2017 would then be

Question

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When the shares are cancelled, the difference between the acquisition cost and the original issue price is adjusted against retained earnings. The cost of acquiring the shares is $135,000 (5,000 shares x $27), and the original issue price is $120,000 (5,000 shares x $24). The difference of $15,000 is deducted from retained earnings. Starting with $420,000, adding net income of $150,000, and subtracting $15,000 gives $555,000.

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