Journal Entries:
It is a book of original entry. It records and summarizes financial transaction of an entity in chronological manner, generally according to dual aspect of accounting.
Accounting rules regarding journal entries:
- Balance increase when: Assets, losses and expenses get debited and liabilities, gains, and revenue get credited.
- Balance decrease when: Assets, losses and expenses get credited and liabilities, gains, and revenue get debited.
Stated Value:
It is the value of a share assign by the management of the company when its charter is silent about the face value of the share. It is assigned for accounting purpose.
To prepare:
Explanation of Solution
1.
4,000 shares issued for $35,000n with $5 par value:
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Cash | 35,000 | |||
Common Stock | 20,000 | |||
Paid in capital in excess of par value, common stock | 15,000 | |||
(Being shares issued at above face value ) |
- Cash is an asset. Since, cash is received, it increases asset. Hence debit Cash account
- Common stock is equity. Since, shares is issued, it increases equity. Hence, credit Common Stock account.
- Paid in capital in excess of par value, common stock is part of a shareholder’s fund. Since, money is received, it increases equity. Hence, credit Paid in capital in excess of par value, common stock.
Working Notes:
Calculation for common stock:
Calculation For paid in excess of par value:
2.
2,000 shares for employees effort has been issued worth $40,000 for $1 stated value:
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
40,000 | ||||
Common Stock | 2,000 | |||
Paid in capital in excess of par value, common stock | 38,000 | |||
(Being shares issued at above face value ) |
- Retained earnings are a part of
stockholder’s equity. Since, shares is issued from it, it reduces retained earnings. Hence, debit Retained Earnings account. - Common stock is equity. Since, shares is issued, it increases equity. Hence, credit Common Stock account.
- Paid in capital in excess of par value, common stock is part of a shareholder’s fund. Since, money is received, it increases equity. Hence, credit Paid in capital in excess of par value, common stock.
Working Notes:
Calculation for common stock:
Calculation For paid in excess of par value:
3.
2,000 shares for employees effort has been issued worth $40,000:
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Retained Earnings | 40,000 | |||
Common Stock | 40,000 | |||
(Being shares issued at above face value ) |
- Retained earnings are a part of stockholder’s equity. Since, shares is issued from it, it reduces retained earnings. Hence, debit retained earnings account.
- Common stock is equity. Since, shares is issued, it increases equity. Hence, credit common stock account.
4.
1,000 shares issued for $60,000n with $50 par value:
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Cash | 60,000 | |||
| 50,000 | |||
Paid in capital in excess of par value, Preferred stock | 10,000 | |||
(Being shares issued at above face value ) |
- Cash is an asset. Since, cash is received, it increases asset. Hence debit Cash account
- Preferred Stock is equity. Since, shares is issued, it increases equity. Hence, credit preferred stock account.
- Paid in capital in excess of par value, preferred stock is part of a shareholder’s fund. Since, money is received, it increases equity. Hence, credit paid in capital in excess of par value, preferred stock.
Working Notes:
Calculation for common stock:
Calculation For paid in excess of par value:
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