McPhee Properties repurchased some of its outstanding common stock for a price greater than its par value and held it in the treasury. Then, McPhee re-issued the treasury stock at a price greater than the acquisition price. Which of the following is true about the effect of the combined treasury stock acquisition and re-issue?

1. Retained earnings increased and shareholders' equity increased.
2. Retained earnings decreased and shareholders' equity decreased.
3. Retained earnings are unaffected and shareholders' equity was unaffected.
4. Retained earnings were unaffected and shareholders' equity decreased.
5. None of the above.