If Brookdale Corporation had reacquired 7,000 shares of treasury stock early in 2018,and this was the company's only treasury stock transaction,then some treasury stock must have been sold during 2018 for:

Question

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We can use the following equation to determine the price at which treasury stock was sold during 2018:

Treasury Stock Sold = Beginning Treasury Stock - Treasury Stock Reacquired

We know that Brookdale Corporation reacquired 7,000 shares of treasury stock in 2018. In order for this to be the only treasury stock transaction of the year, some treasury stock must have been sold as well. We are not given the beginning balance of the treasury stock, so we cannot calculate the exact number of shares sold. However, we can use the answer choices to identify the selling price per share.

If we assume that the shares were sold for $32 or $27 per share, the company would have made a profit on the sale of its treasury stock. This is because the cost method of accounting for treasury stock requires that the stock be recorded at its cost (i.e. the price the company paid to acquire the stock). If the stock is sold for more than its cost, the company will recognize a gain on the sale. This would not make sense for a company that is trying to reduce its number of outstanding shares.

If we assume that the shares were sold for $6 per share, the company would have incurred a significant loss on the sale. This is because the stock was reacquired at a higher price than $6 per share, so selling it for such a low price would result in a loss.

Therefore, the only realistic choice is B) $38 per share. If the treasury stock was sold for $38 per share, the company would have neither gained nor lost money on the transaction, because the selling price is equal to the price at which the stock was reacquired.

If Brookdale Corporation Had Reacquired 7,000 Shares of Treasury Stock