Kryer Ltd. has 50,000 no par value common shares authorized, issued, and outstanding. All 50,000 shares were issued at $ 4 per share. Retained earnings are $ 60,000. If 5,000 common shares were reacquired at $ 3 and cancelled,
A) shareholders' equity would decrease $ 75,000.
B) contributed surplus would increase $ 5,000.
C) contributed surplus would decrease $ 5,000.
D) retained earnings would decrease $ 15,000.

Question

Quizplus · Accepted Answer

When 5,000 common shares are reacquired at $3 each, the total cost is $15,000. Since the shares were originally issued at $4 per share, the total contributed capital for these shares was $20,000. By reacquiring and canceling them, the company reduces its common stock by $20,000 but only spends $15,000 to do so. The difference of $5,000 is added to contributed surplus, reflecting the excess of the original contribution over the reacquisition cost.

Kryer Ltd Has 50,000 No Par Value Common Shares Authorized, Issued