Answer:
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
