STOCK SUBSCRIPTIONS AND
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 % |
31 | Sold 500 shares of its treasury stock for $10.50 a share. |
REQUIRED
Prepare
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:
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
June 30 | Organization 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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
July 15 | Cash | 82,000 | |
Common Stock | 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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
August 1 | Common Stock Subscriptions Receivable | 101,500 | |
Common Stock Subscribed | 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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
August 15 | Building | 104,800 | |
Common Stock | 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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
August 31 | Cash | 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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 3 | Common Treasury Stock | 11,000 | |
Cash | 11,000 | ||
(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.
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 18 | Cash | 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
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 18 | Common Stock Subscribed | 100,000 | |
Common Stock | 100,000 | ||
( 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
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 30 | Cash | 5,750 | |
Common Treasury Stock | 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:
(2) Calculate Paid-In Capital in Excess of Par— Common Stock:
(3) Calculate Paid-In Capital in Excess of Par— Common Stock:
(4) Calculate Paid-In Capital in Excess of Par— Common Stock:
(5) Calculate Paid-In Capital from Sale of Treasury Stock:
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