Table 14-6
Following is the shareholders' equity section of the balance sheet of Thomson Corporation:
$$\begin{array} { | l | r | }
\hline \text { Contributed capital } & \
\hline \text { Preferred shares, } \$ 6 \text {, cumulative, } 25,000 \text { shares } & \
\hline \text { authorized, } 7,000 \text { shares issued } & \$ 700,000 \
\hline \text { Common shares, } 1,000,000 \text { shares authorized, } 500,000 & \
\hline \text { shares issued } & 2,500,000 \
\hline \text { Total contributed capital } & 3,200,000 \
\hline \text { Retained earnings } & \$ 90,000 \
\hline \text { Total shareholders' equity } & \$ 4,190,000 \
\hline
\end{array}$$ The preferred shares are currently selling for $89.50 per share and the common shares are currently selling for $12.50 per share.
-Refer to Table 14-6.The entry to record Thomson's purchase of 10,000 of its common shares at $12.50 per share includes a:

Question

Table 14-6
Following is the shareholders' equity section of the balance sheet of Thomson Corporation:
 $$\begin{array} { | l | r | } 
\hline \text { Contributed capital } & \
\hline \text { Preferred shares, } \$ 6 \text {, cumulative, } 25,000 \text { shares } & \
\hline \text { authorized, } 7,000 \text { shares issued } & \$ 700,000 \
\hline \text { Common shares, } 1,000,000 \text { shares authorized, } 500,000 & \
\hline \text { shares issued } & 2,500,000 \
\hline \text { Total contributed capital } & 3,200,000 \
\hline \text { Retained earnings } & \$ 90,000 \
\hline \text { Total shareholders' equity } & \$ 4,190,000 \
\hline
\end{array}$$ The preferred shares are currently selling for $89.50 per share and the common shares are currently selling for $12.50 per share.
-Refer to Table 14-6.The entry to record Thomson's purchase of 10,000 of its common shares at $12.50 per share includes a:

Quizplus · Accepted Answer

When the company purchases its own common shares, it reduces the amount of outstanding common shares and increases the amount of treasury shares. This transaction is recorded by debiting treasury stock (a contra-equity account) for the cost of the shares purchased, which is $125,000 (10,000 shares x $12.50 per share) and crediting common shares for the same amount. Therefore, the correct answer is (B) debit to common shares for $50,000. There is no impact on retained earnings or contributed surplus for a share repurchase.

Table 14-6 Following Is the Shareholders' Equity Section of the Balance

Table 14-6
Following Is the Shareholders' Equity Section of the Balance