The stockholders' equity section of Sliver Corporation's balance sheet at December 31,2014,was as follows: On January 2,2015,Sliver purchased and retired 100,000 shares of its stock for $1,800,000.Sliver records treasury stock using the par value method.Immediately after retirement of these 100,000 shares,the balances in the additional paid-in capital and retained earnings accounts should be
Paid-In Capital Retained
In Excess of Par Earnings

Question

The stockholders' equity section of Sliver Corporation's balance sheet at December 31,2014,was as follows:  On January 2,2015,Sliver purchased and retired 100,000 shares of its stock for $1,800,000.Sliver records treasury stock using the par value method.Immediately after retirement of these 100,000 shares,the balances in the additional paid-in capital and retained earnings accounts should be
Paid-In Capital Retained
In Excess of Par Earnings

Quizplus · Accepted Answer

Using the par value method, treasury stock is recorded at cost (in this case, $1,800,000). This reduces both total stockholders' equity and the number of outstanding shares.

First, we need to calculate the original balances in additional paid-in capital and retained earnings accounts:

Additional paid-in capital: $4,000,000 - ($1 par x 1,000,000 shares) = $3,000,000
Retained earnings: $2,000,000

After purchasing and retiring 100,000 shares of common stock, the new balances in the additional paid-in capital and retained earnings accounts will be:

Additional paid-in capital: $3,000,000 - ($1 par x 100,000 shares) = $2,900,000
Retained earnings: $2,000,000 - $1,800,000 = $200,000

Therefore, the answer is D) $2,400,000 $800,000.

The Stockholders' Equity Section of Sliver Corporation's Balance Sheet at December