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 115 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 $22 per share. Mar. 11 Issued 5,500 shares in exchange for custom-made equipment. McCollum’s shares have traded recently on the stock exchange at $22 per share.
Part B A new staff accountant for the McCollum Corporation recorded the following journal entries during the second year of operations. McCollum retires shares that it reacquires (restores their status to that of authorized but unissued shares). ($ in millions) Date General Journal Debit Credit Sept. 1 Common stock 4 Retained earnings 104 Cash 108 Dec. 1 Cash 56 Common stock 2 Gain on sale of previously issued shares 54 Required: Prepare the journal entries that should have been recorded for each of the transactions.
($ in millions) | |||
Date | General Journal | Debit | Credit |
Sept. 1 | Common stock | 4 | |
Retained earnings | 104 | ||
Cash | 108 | ||
Dec. 1 | Cash | 56 | |
Common stock | 2 | ||
Gain on sale of previously issued shares | 54 | ||
Required:
Prepare the journal entries that should have been recorded for each
of the transactions.
Part A:
Record the issue of 80 million common shares for $22 per share
Record the issue of 5,500 shares in exchange for custom-made equipment. McCollum's shares have traded recently on the stock exchange at $22 per share.
Part B
Record the stock transaction occurring on Sept. 1.
Record the stock transaction occurring on Dec. 1.
The par value of share given in $ 1.
Date |
Particulars |
Debit ($) |
Credit ($) |
Jan 9 |
Cash (80 X 22) |
1760 mn |
|
Common stock (80*1) |
80 mn |
||
PIC in excess of par (80*21) |
1680 mn |
||
(To record issuance of equity) |
|||
Mar 11 |
Equipment (5500 *22) |
121,000 |
|
Common stock (5500*1) |
5500 |
||
PIC in excess of par (5500*21) |
115,500 |
||
(To record exchange of shares for equipment) |
|||
Part B |
|||
Sept 1 |
Common stock (4*1) |
4 mn |
|
PIC in excess of par (4*21) |
84 mn |
||
Retained earnings (to balance) |
20 mn |
||
Cash |
108 mn |
||
(to record retirement of shares) |
|||
Note 1 |
|||
Dec 1 |
Cash |
56 mn |
|
Common stock |
2 mn |
||
PIC in excess of par |
54 mn |
||
(To record retirement) |
|||
Note 2 |
Note 1
When stock is retired, paid in capital created when the stock is issued should first be reduced. Only then should retained earnings be debited.
Note 2
Corporations shall not recognize profit or loss in stocks dealt. However, paid-in capital in excess of par should have been credited for the excess of the amount received over the par value of the stock.
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