PQR Inc.had 1,000 common shares outstanding with a par value of $10 per share.There was $20,000 of contributed surplus arising from previous retirements of shares in this class.Assume that half of these shares were retired for $14 per share.The journal entry to record this transaction would include:
A)a debit to retained earnings of $40,000.
B)a credit to retained earnings of $40,000.
C)a debit to retained earnings of $20,000 and a debit to contributed surplus of $20,000.
D)an income statement loss of $40,000.

Question

Quizplus · Accepted Answer

The correct journal entry to record the retirement of shares includes a debit to retained earnings for the amount exceeding the contributed surplus allocated to the retired shares ($20,000) and a debit to contributed surplus for the remaining amount ($20,000). This reflects the use of contributed surplus first, followed by retained earnings to account for the total cost of retiring the shares.

PQR Inchad 1,000 Common Shares Outstanding with a Par Value of of $10