The board of directors of Wilcox, Inc., has noted a 7% drop in the market price of its preferred stock and decides to purchase 100,000 shares of the stock for an amount below the redemption price of the stock. Under these circumstances, which of the following is a true statement?
A. The corporation will realize a taxable gain as a result of the transaction.
B. The preferred stock so acquired must be retired and may not be held as treasury stock.
C. The corporation may not acquire its own shares unless the articles of incorporation so provide.
D. Such shares may be purchased by the corporation to the extent of unreserved and unrestricted retained earnings.
Answer: D. Such shares may be purchased by the corporation to the extent of unreserved and unrestricted retained earnings.
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