At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts

The retained earnings will be decrease as the re-issued value is less than the cost at which they were acquired and it is debited.

Explanation:

Re-issuance of the stock:

A company has the ability to reissue shares of treasury stock as a way of raising capital for the company’s business activities.

As Sauder acquired 20,000 shares of its common stock at a price of $16 per share so

Formula for Amount:

Amount = Acquired no. of shares * cost

As Acquired no. of shares = 20000

Cost = $16

therefore by putting the values in the above formula, we get

Amount = 20000 * 16

Amount = $320,000

As these shares were reissued at a price of $12 per share so

Re issued no. of shares = 20000

Cost = $12

therefore by putting the values in the above formula, we get

Amount = 20000 * 12

Amount = $240,000

Now we need to analyze the condition of various accounts.

Cash Accounts:

Debit = $240,000  

Retained Earning Account:

Debit = $320,000  - $240,000

Debit = $80,000  

Treasury Stock Account:

Credit = $320,000

Effect on the re-issuance of the stock:

The retained earnings will be decrease as the re-issued value is less than the cost at which they were acquired and it is debited.

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