Management decided to buy-back 1 million shares that had been issued for $1 per share,for $1 per share.At the time of the buy-back total share capital was 20 million shares.The likely accounting entry to record the buy-back is:

Question

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When a company repurchases its own shares, the share capital account is reduced. In this case, management bought back 1 million shares for $1 per share, which means they will spend $1 million in cash to buy back these shares. Therefore, the accounting entry to record the buy-back would be to debit share capital for $1 million (to reduce the share capital account) and to credit cash at bank for $1 million (to record the payment made for the shares). Choice A is the only option that reflects this accounting treatment.

Management Decided to Buy-Back 1 Million Shares That Had Been