Question

Part A
During its first year of operations, the McCollum Corporation entered into the following transactions relating to shareholders’ equity. The corporation was authorized to issue 104 million common shares, $1 par per share.

Required:
Prepare the appropriate journal entries to record each transaction.

Jan.		9		Issued 30 million common shares for $15 per share.
Mar.		11		Issued 4,300 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the stock exchange at $15 per share.

Part B
A new staff accountant for the McCollum Corporation recorded the following journal entries during the second year of operations. McCollum retires shares that it reacquires (restores their status to that of authorized but unissued shares).

		($ in millions)
Date	General Journal	Debit	Credit
Sept. 1	Common stock	2
	Retained earnings	118
	Cash		120
Dec. 1	Cash	21
	Common stock		1
	Gain on sale of previously issued shares		20

Required:
Prepare the journal entries that should have been recorded for each of the transactions.

Answer 1

Date	General Journal	Debit	Credit
PART A
Issued 30 million common shares for $15 per share.
Jan. 9	Cash A/c	$        450,000,000
	To common share (30m nos of share x $ 1 par value)		$                   30,000,000
	To paid in capital in excess of par (30m nos of share x $ 14 (i.e. 15-1) premium)		$                420,000,000
	(to share issued at premium)
Issued 4,300 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the stock exchange at $15 per share.
Mar 11.	Equipement	64500
	To common share (4300 nos of share x $ 1 par value)		4300
	To paid in capital in excess of par (4300 nos of share x $ 14 premium value)		60200
	(to share issued in exchange of equipment)
PART B
Sept. 1	Common share (2m nos of share x $ 1 par value)	$             2,000,000
	paid in capital in excess of par (2m nos of share x $ 14 premium)	$          28,000,000
	Retained earnings (bal. fig.)	$          90,000,000
	Cash		$                120,000,000
	( repurchases issues share at premium)
(note as par is $ 1 then 2M share must been repurchased and where intially stocks are issued at premium and repurchased at preimum then Paid in capital account is first debited and balance if any would be from retained earning)
Dec. 1	Cash	$          21,000,000
	To Common share (1m nos of share x $ 1 par value)		$                     1,000,000
	To paid in capital in excess of par (bal. fig)		$                   20,000,000
	( to issues share at premium)
(note any amt received in excess of par is share premium account only and not recognised as gain )