Use the following information for questions.
At December 31, 2019, the balance in Helsinki Ltd.'s retained earnings account was $ 420,000. During 2020, 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, 2020 would then be
A) $ 555,000.
B) $ 570,000.
C) $ 585,000.
D) $ 610,000.

Question

Quizplus · Accepted Answer

If the treasury shares are canceled, they are considered retired and the treasury stock account is closed. The difference between the cost of the shares and the par value is credited to additional paid-in capital. The difference between the par value and the selling price is credited to retained earnings.Treasury shares = 5,000 shares * $27 = $135,000Additional paid-in capital = 5,000 shares * ($27 - $24) = $15,000Retained earnings = 5,000 shares * ($32 - $27) = $25,000Retained earnings at December 31, 2020 = $420,000 + $150,000 + $25,000 = $595,000

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