In: Accounting
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 116 million common
shares, $1 par per share.
Required:
Prepare the appropriate journal entries to record each
transaction.
Jan. | 9 | Issued 80 million common shares for $24 per share. | ||
Mar. | 11 | Issued 5,600 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the stock exchange at $24 per share. |
Part B
A new staff accountant for the McCollum Corporation recorded the
following journal entries during the second year of operations.
McCollum retires shares that it reacquires (restores their status
to that of authorized but unissued shares).
($ in millions) | |||
Date | General Journal | Debit | Credit |
Sept. 1 | Common stock | 2 | |
Retained earnings | 56 | ||
Cash | 58 | ||
Dec. 1 | Cash | 30 | |
Common stock | 1 | ||
Gain on sale of previously issued shares | 29 | ||
Required:
Prepare the journal entries that should have been recorded for each
of the transactions.
PART A | ||||||
Jan. 9 | Issued 80 million common shares for $24 per share. | |||||
Cash (80 million x $24) | $ 1,920.00 | |||||
Common stock (80 million x $1) | $ 80.00 | |||||
PIC in excess of par (80 million x $23) | $ 1,840.00 | |||||
Mar. 11 | Issued 5,600 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the stock exchange at $24 per share. | |||||
Equipment (5,600 x $24) | $ 134,400.00 | |||||
Common stock (5600 x $1) | $ 5,600.00 | |||||
PIC in excess of par (5600 x $23) | $ 128,800.00 | |||||
PART B | ||||||
Entry Made | ||||||
Sep-01 | Common Stock | 2 | ||||
Retained Earnings | 56 | |||||
Cash | 58 | |||||
When stock is retired, paid in capital created when the stock was issued should first be reduced. | ||||||
Only then should retained earnings be debited. Therefore | ||||||
Common Stock | 2 | |||||
PIC in excess of par (2 million x $23) | 46 | |||||
Retained earnings (plug) | 10 | |||||
Cash | 58 | |||||
Dec-01 | Entry made | |||||
Cash | 30 | |||||
Common Stock | 1 | |||||
Gain on sale of previously issued shares | 29 | |||||
the gain should not have been credited, as the company never recognize gains or losses for its own stock | ||||||
paid-in capital should have been
credited for the amountreceived in excess of par excess of the amount received over the par value of the stock |
||||||
Cash | 30 | |||||
Common Stock | 1 | |||||
PIC in excess of par | 29 |