Question

Brief Exercise 18-5 (Algo) Retirement of shares (L018-5) Horton Industries shareholders' equity included 120 million shares of S1 par common stock and a balance in paid-in capital - excess of par of $1,080 million Assuming that Horton retires shares it reacquires (restores their status to that of authorized but unissued shares), by what amount will Horton's total paid in capital decline if it reacquires 1 million shares at $7.00 per share? (Enter your answer in millions (ie., 10,000,000 should be entered as 10).) Answer is complete but not entirely correct. Total paid in capital wil decline by 0 milion

Answer 1

The financial effect on retiring of shares are a decrease in resources and a decrease in stockholder's equity.

Horton reacquire 1 shares million shares at $7 per share. So the company's resources wil decrease by 1 million shares * $7 per share =$7 million. The company stock account will decrease by par value of 1 million shares and the rest of the amount will be reduce from paid-in capital .

Now par value of share is $1 per share. So company stock will decrease by 1 million shares * $1 per share = $1 million.

So the remaining balance to be reduce from paid-in capital = $7 million - $1 million = $6 million

So total paid-in capital will decline by $6 million.

Total paid -in capital will decline by $6 Million