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At December 31, 2019, the balance in Helsinki Ltd.'s retained earnings account was $ 420,000. During 2020, Helsinki had the following transactions:
Acquired 5,000 treasury shares at $ 27 a share. The shares are no par and had originally been issued for $ 24 per share. There had been no previous treasury shares transactions.
Sold the 5,000 treasury shares at $ 32 a share.
Reported net income of $ 150,000.
-At December 31, 2019, the balance of Glasgow Ltd.'s retained earnings account was $ 450,000. During 2020, the company had the following transactions: Acquired 5,000 treasury shares at $ 75 per share. The shares are no par value and had originally been issued for $ 65 per share. There had been no previous treasury share transactions.
Net income for 2020 was $ 400,000.
Sold the 5,000 treasury shares at $ 80 per share.
What is the balance in retained earnings at December 31, 2020?
A) $ 900,000
B) $ 850,000
C) $ 775,000
D) $ 762,500

Question

Quizplus · Accepted Answer

For Helsinki Ltd:
- Acquired 5,000 treasury shares at $27 per share, resulting in a decrease in retained earnings of $15,000 (5,000 shares x ($27-$24))
- Sold the 5,000 treasury shares at $32 per share, resulting in an increase in retained earnings of $25,000 (5,000 shares x ($32-$27))
- Reported net income of $150,000, resulting in an increase in retained earnings of $150,000
Therefore, the balance in retained earnings at December 31, 2020, is $ 420,000 - $15,000 + $25,000 + $150,000 = $580,000

For Glasgow Ltd:
- Acquired 5,000 treasury shares at $75 per share, resulting in a decrease in retained earnings of $50,000 (5,000 shares x ($75-$65))
- Sold the 5,000 treasury shares at $80 per share, resulting in an increase in retained earnings of $50,000 (5,000 shares x ($80-$75))
- Reported net income of $400,000, resulting in an increase in retained earnings of $400,000
Therefore, the balance in retained earnings at December 31, 2020, is $450,000 - $50,000 + $50,000 + $400,000 = $850,000

Thus, the best choice is B, which is the balance in retained earnings at December 31, 2020, for Glasgow Ltd.

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