In year 1, Fogg, Inc. issued $10 par value common stock for
$25 per share. No other common stock transactions occurred
until March 31, year 3, when Fogg acquired some of the issued
shares for $20 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?

(c) The requirement is to determine which of the statements
correctly identifies an effect of the acquisition and retirement
of common stock. The entry to record the retirement of
common stock appears as follows:
Common stock (par) xxx
Additional paid-in capital xxx
Retained earnings xxx
Cash xxx
Additional paid-in capital is debited to the extent it exists. In this
case, based on the original issuance, the additional paid-in capital
(APIC) balance was $15 per share on the shares retired. When
stock is repurchased, if the APIC balance is depleted to zero,
retained earnings must also be debited. In this case, retained
earnings would not be needed, however. Common stock would
be debited for $10 per share and additional paid-in capital would
be debited for $10 a share. Excess APIC remains, so retained
earnings are not needed to retire the stock. When common stock
is repurchased and retired, additional paid-in capital decreases.
When common stock is retired, net income is never affected;
only stockholders’ equity balances are affected. If retained earnings
are needed to retire stock, the account decreases, not increases.