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 114 million common shares, $1 par per share.

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

Jan.		9		Issued 70 million common shares for $20 per share.
Mar.		11		Issued 5,400 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the stock exchange at $20 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	48
	Cash		50
Dec. 1	Cash	26
	Common stock		1
	Gain on sale of previously issued shares		25

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

Answer 1

Following are the journal entires for the given Part -A

Part A:
	Journal entry in the books of McCollum Corporation
			($ in Million )
Date	Particulars	Debit	Credit
Jan-09	Cash A/c	1400
	Common Stock		70
	Paid in Capital in excess of par		1330
	(being 70 million common shares issued for $ 20)
Mar-11	Equipment A/c Dr	0.108
	Common Stock		0.0054
	Paid in Capital in excess of par		0.1026
	(being 5400 common shares issued for $ 20 in exhange of premium )

Explanation :

1. While issuing common shares, Par value of shares i.e $1 are recorded in common stock and balance of $ 19 are recoded in " Paid in Capital in excess of par "
2. When Equipmennt is purchased total value of machinery is equal to value of shares issued i.e 5400 shares at rate of market price of $20.

Part B
Date	Particulars	Debit	Credit
Sept-01	Common Stock	2
	Paid in Capital in excess of par	38
	Retained earnings		10
	Cash A/c		50
	(being 2 million common shares retired )
Dec-1	Cash A/c	26
	Common Stock		1
	Paid in Capital in excess of par		25
	(being 1 million common shares are reissured )

Explanantion :

1. When the shares are retired amount paid in excess of par value is first adjusted with Paid in Capital in excess of par to the extent it is orginaaly recieved at time of issue ($19 per share ) and after that the balance should be debited to retained earning i.e $ 5 per share
2. On the event of reissue of shares amount recieved in excess of Par ($1) should be recorded as paid in capital in excess of par($25).