Question

Agee Storage issued 29 million shares of its $1 par common stock at $14 per share several years ago. Last year, for the first time, Agee reacquired 1 million shares at $12 per share.

Assuming that Agee retires shares it reacquires (restores their status to that of authorized but unissued shares), by what amount will Agee’s total paid-in capital decline if it now reacquires 1 million shares at $18 per share? (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).)

Total paid in capitol will decline by: ________

Answer 1

Agee’s total paid-in capital will decline by $16 million

($18 million - 2 million of retained earnings)

First buyback:

Account Titles	Debit	Credit
Common stock (1 million shares x $1 par)	$1
Paid-in capital--excess of par (1 million shares x $13)	$13
Paid-in capital--share repurchase (difference)		$2
Cash (1 million shares x $12)		$12

Second buyback:

Account Titles	Debit	Credit
Common stock (1 million shares x $1 par)	$1
Paid-in capital--excess of par (1 million shares x $13)	$13
Paid-in capital--share repurchase (balance from first buyback)	$2
Retained earnings (difference)	$2
Cash (1 million shares x $18)		$18

Dr Common stock (1 million shares x $1 par) 1

Dr Paid-in capital--excess of par 11

Dr Paid-in capital--share repurchase (balance from first buyback) 2

Dr Retained earnings (difference) 2

Cr Cash (1 million shares x $16) 16