Dale Murphy Company had beginning retained earnings of $60,000.During the year the company had net income of $20,000,and paid dividends of $7,500.The Company repurchased 1,000 shares of its stock for $45 during the period.What is the net effect of these transactions on the items shown below?

Question

Quizplus · Accepted Answer

Retained earnings increase due to net income ($20,000) minus dividends paid ($7,500), resulting in a net increase of $12,500. However, repurchasing shares for $45,000 decreases total shareholders' equity, as it is a use of the company's resources to buy back its own stock.

Dale Murphy Company Had Beginning Retained Earnings of $60,000