When preferred stock is purchased by the issuing corporation at a price below the original issue price and the stock is retired, the transaction:
A) Increases net income for the year.
B) Increases retained earnings.
C) Increases revenue for the year.
D) Increases paid-in capital--share repurchase.

Question

Quizplus · Accepted Answer

When preferred stock is purchased by the issuing corporation at a price below the original issue price and the stock is retired, it is considered a share repurchase. This increases paid-in capital because the corporation is buying back its own shares. It does not impact net income or revenue, and it may or may not impact retained earnings depending on the accounting treatment chosen by the corporation.

When Preferred Stock Is Purchased by the Issuing Corporation at a Price