Centrador issues 200,000 no-par value shares for $150 per share in 2018.Three years later,it repurchases 30,000 of these shares for $80 per share.Centrator records the repurchase in which of the following ways?
A)Debit Common Shares for $2.4 million,debit cash for $2.1 million and credit Contributed capital for $4.5 million.
B)Debit Common Shares for $4.5 million and credit Cash for $2.4 million and contributed surplus for $2.1 million.
C)Debit common shares for $4.5,debit contributed surplus for $2.4 and credit cash for $2.1 million.
D)Debit Cash for $4.5 million,credit Common shares for $2.4 million and credit Contributed Surplus for $2.1 million.

Question

Quizplus · Accepted Answer

B) is correct because when a company repurchases its shares, the cost of the repurchased shares is deducted from common shares at their original issue price. Any difference between the repurchase price and the original issue price is recorded in contributed surplus. In this case, the original issue price was $150 per share for 200,000 shares, totaling $30 million. The repurchase was at $80 per share for 30,000 shares, totaling $2.4 million. The difference of $2.1 million ($4.5 million original value of repurchased shares - $2.4 million repurchase cost) goes to contributed surplus.

Centrador Issues 200,000 No-Par Value Shares for $150 Per Share