Question

In: Accounting

Part A During its first year of operations, the McCollum Corporation entered into the following transactions...

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.

Solutions

Expert Solution

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

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