Calypso Inc.issues 100,000 shares at $10 / share in January.Later that year the company is able to repurchase 9,000 of these shares at $11 per share.The balance in the contributed surplus account is $0 prior to the share repurchase.The effect of this is
A)a decrease to the share capital account of $99,000.
B)an increase to the contributed surplus account of $9,000.
C)a increase to total shareholders' equity of $99,000.
D)a decrease in retained earnings by $9,000.

Question

Quizplus · Accepted Answer

When the company issues the shares, the share capital account will increase by $1,000,000 (100,000 shares x $10/share). 
When the company repurchases 9,000 shares at $11 per share, it will spend $99,000 (9,000 shares x $11/share). 
Since the contribution surplus account is already at $0 before the share repurchase, there will be no change to this account. 
Thus, the only account that will be affected is retained earnings, which will decrease by $9,000 due to the share repurchase. Therefore, option D is the correct answer.