Question

In previous years, Cox Transport reacquired 3 million treasury shares at $20 per share and, later, 1 million treasury shares at $24 per share. If Cox now sells 3 million treasury shares at $26 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?

Answer 1

a)The weighted Averarge cost of treasury shares is calculated below:

The weighted average cost of treasury shares

= (3000,000 treasury shares *$ 20 + 1000,000 treasury shares*$24)/( 3000,000 treasury shares + 1000,000 treasury shares)

= ($60,000,000 + 24.000,000)/4000,000 treasury stocks

= $84,000,000/4000,000 treasury stocks

= $21

The weighted Average cost of treasury shares = $21

b)Cox's piad in capital - shares repurchase increase is calculated below:

Cox's paid in capital - share repurchase increase

= ( 3000,000 treausry shares *$26 Per Share) - (3000,000 treausry shares * $21 Per Share)

=$78,000,000 -$ 63,000,000

=$15,000,000

Cox's paid in capital - share repurchase increase is $15,000,000