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In previous years, Cox Transport reacquired 4 million treasury shares at $22 per share and, later,...

In previous years, Cox Transport reacquired 4 million treasury shares at $22 per share and, later, 2 million treasury shares at $28 per share. If Cox now sells 3 million treasury shares at $30 per share and determines cost as the weighted-average cost of treasury shares, by what amount will Cox’s paid-in capital - share repurchase increase? (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).)

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Answer #1

Cox’s paid-in capital - share repurchase will increase by $18 million

Explanation:

Weighted-average cost of treasury shares = Total value of Treasury shares reacquired ÷ Total number of Treasury shares

Total value of Treasury shares reacquired = (4 million × $22) + (2 million × $28) = $88 million + $56 million = $144 million

Total number of Treasury shares = 4 million + 2 million = 6 million

Weighted-average cost of treasury shares = $144 million ÷ 6 million = $24

Sales value of Treasury stock = 3 million × $30 = $90 million

Weighted average cost of Treasury stock sold = 3 million × $24 =$72 million


Paid-in capital - share repurchase = Sales value of Treasury stock - Weighted average cost of Treasury stock sold = $90 million - $72 million = $18 million

Cox’s paid-in capital - share repurchase will increase by $18 million

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