Anthem Inc.issues 200,000 shares of stock with a par value of $0.01 for $150 per share.Three years later,it repurchases these shares for $80 per share.Anthem records the repurchase in which of the following ways?
A) Debit Common Stock for $2,000, debit Additional Paid-in Capital for $29,998,000 and credit Cash for $30 million.
B) Debit Treasury Stock for $16 million and credit Cash for $16 million.
C) Debit Common Stock for $2,000, debit Additional Paid-in Capital for $15,998,000 and credit Cash for $16 million.
D) Debit Stockholders' Equity for $30 million, credit Additional Paid-in Capital for $16 million and credit Cash for $16 million.

Question

Quizplus · Accepted Answer

When a company repurchases its own shares, it records the transaction by debiting Treasury Stock and crediting Cash for the amount paid to repurchase the shares. Therefore, the correct option is B. Option A is incorrect because it includes an additional credit to Additional Paid-in Capital, which is not necessary for this transaction. Option C is incorrect because it only credits Cash for $16 million, whereas the repurchase price is $80 per share, resulting in a total of $16 million (200,000 shares x $80 per share). Option D is incorrect because it incorrectly credits Additional Paid-in Capital for the full $30 million when only $16 million was used to repurchase the shares.