As of December 31, 2021, Bennacer Corporation reported the following: Cash dividends payable $ 35,000 Treasury stock 750,000 Paid-in capital—share repurchase 35,000 Common stock and other paid-in capital accounts 5,500,000 Retained earnings 4,500,000 During 2022, half of the treasury stock was resold for $270,000; net income was $750,000; cash dividends declared were $1,650,000; and stock dividends declared were $650,000. The 2022 sale of half of the treasury stock would:

The correct option in the attached full question is that the sale of half of treasury stock would reduce retained earnings by $70,000

Explanation:

The sale of half of treasury for $270,000 meant that the stock were sold for less than their worth of $375,000($750,000*1/2).

In order to recognize the loss of $105,000 on the sale ($375,000-$270,000) in the books of account,we first we need to reverse the excess amount posted to paid in capital-share repurchase account of $35,000 while the balance of the loss is debited to retained earnings.

The necessary entries are:

Dr Cash                                                                         $270,000

Dr paid-in capital-share repurchase                            $35,000

Dr retained earnings($375,000-$270,000-$35,000) $70,000

Cr treasury stock                                                                            $375,000

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