College Accounting, Chapters 1-27
College Accounting, Chapters 1-27
23rd Edition
ISBN: 9781337794756
Author: HEINTZ, James A.
Publisher: Cengage Learning,
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Chapter 20, Problem 9SPB

STOCK SUBSCRIPTIONS AND TREASURY STOCK Rogers & Hart formed a corporation and had the following organization costs and stock transactions during the year:

June 30 Incurred the following costs of incorporation:
July 15 Issued 8,000 shares of $10 par common stock for $82,000 cash.
Aug. 1 Received subscriptions for 10,000 shares of $10 par common stock for $101,500.
  15 Issued 10,000 shares of $10 par common stock in exchange for a building with a fair market value of $104,800.
  31 Received a payment of $51,500 for the common stock subscription.
Sept. 3 Purchased 1,000 shares of its own $10 par common stock for $11 a share.
  18 Received the balance in full for the common stock subscription and issued the stock.
  30 Sold 500 shares of its treasury stock for $11.70 a share.
Oct. 15 Issued 4,000 shares of $25 par, 8 % preferred stock in exchange for land with a fair market value of $105,000.
  31 Sold 500 shares of its treasury stock for $10.50 a share.

REQUIRED

Prepare journal entries for these transactions.

Expert Solution & Answer
Check Mark
To determine

Prepare journal entries.

Explanation of Solution

Capital stock subscriptions:

Capital stock subscriptions are an agreement where in a buyer makes a contract to buy the shares of stock from a corporation at a particular price.

Treasury Stock:

It refers to the shares that are reacquired by the corporation that are already issued to the stockholders, but reacquisition does not signify retirement.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Record the journal entry:

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 June 30Organization Expenses (1) 14,900 
  Cash 14,900
  (To record corporate organization costs) 

Table (1)

  • Organization expenses are component of stockholders’ equity and it is decreased. Therefore, debit organization expenses account by $14,900.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $14,900.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 July 15Cash 82,000 
  Common Stock (8,000shares×$10) 80,000
  Paid-In Capital in Excess of Par— Common Stock (2) 2,000
  (To record the stock issued at premium) 

Table (2)

  • Cash is an asset and it is increased. Therefore debit cash account by $82,000.
  • Common stock is a component of stockholders’ equity and it is increased. Therefore, credit common stock account by $80,000.
  • Paid-In Capital in Excess of Par— Common Stock is a component of stockholders equity and it is increased. Therefore credit paid-In Capital in Excess of Par— Common Stock account by $2,000.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 August 1Common Stock Subscriptions Receivable 101,500 
  Common Stock Subscribed (10,000shares×$10) 100,000
  Paid-In Capital in Excess of Par— Common Stock (3) 1,500
  ( To record the subscription received) 

Table (3)

  • Common stock subscriptions receivable is a contra stockholders’ equity and it is increased. Therefore debit common stock subscriptions receivable account by $101,500.
  • Common stock subscribed is a component of stockholders’ equity and it is increased. Therefore credit common stock subscribed account by $100,000.
  • Paid-In Capital in Excess of Par— Common Stock is a component of stockholders’ equity and it is increased. Therefore, credit Paid-In Capital in Excess of Par— Common Stock account by $1,500.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 August 15Building 104,800 
  Common Stock (10,000shares×$10) 100,000
  Paid-In Capital in Excess of Par— Common Stock (4) 4,800
 (To record the stock issued at premium) 

Table (4)

  • Building is an asset and it is increased. Therefore, debit truck account by $104,800.
  • Common stock is a component of stockholders’ equity and it is increased. Therefore, credit common stock account by $100,000.
  • Paid-In Capital in Excess of Par— Common Stock is a component of stockholders’ equity and it is increased. Therefore, credit Paid-In Capital in Excess of Par— Common Stock account by $4,800.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 August 31Cash 51,500 
  Common Stock Subscriptions Receivable 51,500
  ( To record the payment of subscription) 

Table (5)

  • Cash is an asset and it is increased. Therefore debit cash account by $51,500.
  • Common stock subscriptions receivable is a contra stockholders’ equity and it is decreased. Therefore credit common stock subscriptions receivable account by $51,500.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 September 3Common Treasury Stock (1,000shares×$11) 11,000 
  Cash11,000 
  (To record the purchase of treasury stock) 

Table (6)

  • Common treasury stock is a contra-stockholders’ equity and it is increased. Therefore, debit common treasury stock account by $11,000.
  • Cash is an asset and it is decreased. Therefore, credit cash account by $11,000.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 September 18Cash 50,000 
  Common Stock Subscriptions Receivable 50,000
  ( To record the payment of subscription) 

Table (7)

  • Cash is an asset and it is increased. Therefore debit cash account by $50,000.
  • Common stock subscriptions receivables are a component of stockholders’ equity and it is increased. Therefore credit common stock subscriptions receivable account by $50,000.

Note: In this case, out of $101,500 subscription receivables for common stock, $51,500 is received previously and the final payment of $50,000 ($101,500$51,500) is made by the subscriber now.

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 September 18Common Stock Subscribed  100,000 
  Common Stock100,000 
  ( To record issuance of common stock) 

Table (8)

  • Common stock subscribed is a component of stockholders’ equity and it is decreased. Therefore, debit common stock subscribed account by $100,000.
  • Common stock is a component of stockholders’ equity and it is increased. Therefore, credit common stock account by $100,000.

Note: If the stock subscriptions are fully paid, the stock is issued by the corporation. Now the common stock subscribed account is debited and common stock is credited for the par amount of $100,000(10,000shares×$10) .

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

 September 30Cash (800shares×$11.50) 5,750 
  Common Treasury Stock (800shares×$11)5, 500 
  Paid-In Capital from Sale of Treasury Stock (5) 250
 (To record sale of treasury stock) 

Table (9)

  • Cash is an asset and it is increased. Therefore debit cash account by $5,750.
  • Common treasury stock is a contra-stockholders’ equity and it is decreased. Therefore, credit common treasury stock account by $5,500.
  • Paid-In Capital from Sale of Treasury Stock is a component of stockholders’ equity and it is increased. Therefore, credit Paid-In Capital from Sale of Treasury Stock account by $250.

Working note:

(1) Calculate the organization expenses:

Organizationexpenses=(Incorporationfees+Attorney'sfees+Promotionexpenses)=$900+$6,000+$8,000=$14,900

(2) Calculate Paid-In Capital in Excess of Par— Common Stock:

Paid-In Capital in Excess of Par— common Stock} =CashreceivedParvalueofstock=$82,000$80,000=$2,000

(3) Calculate Paid-In Capital in Excess of Par— Common Stock:

Paid-In Capital in Excess of Par— common Stock} =SubscriptionamountParvalueofstock=$101,500$100,000=$1,500

(4) Calculate Paid-In Capital in Excess of Par— Common Stock:

Paid-In Capital in Excess of Par— Common Stock} =FairmarketvalueofstockParvalueofstock=$104,800$100,000=$4,800

(5) Calculate Paid-In Capital from Sale of Treasury Stock:

Paid-In Capital from saleoftreasurystock} =CashreceivedCost=$5,750$5,500=$250

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Chapter 20 Solutions

College Accounting, Chapters 1-27

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