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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 14, Problem 6EA
Textbook Problem
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James Incorporated is authorized to issue 5,000,000 shares of $1 par value common stock. In its second year of business, the company has the following transactions:

Chapter 14, Problem 6EA, James Incorporated is authorized to issue 5,000,000 shares of $1 par value common stock. In its

Journalize the transactions.

To determine

Introduction:

Common stock is owners’ capital contributed in the business. Holders of the common stock reserve right to participate in voting. Profits are distributed to common stock holders and they receive assets in the event of dissolution of the company.

To journalize:

The transactions relating to issue of common stock.

Explanation of Solution

Record issuance of shares:

Date Account Debit ($) Credit ($)
March, 31 Cash (30,000shares×$10) 300,000
Common Stock (30,000shares×$1) 30,000
....... Additional Paid-in Capital from Common Stock (30,000shares×$9) 270,000
(To record issue of shares for cash)

Table(1)

  • Cash is an asset and it is increased by $300,000. Therefore, cash account is debited with $300,000.
  • Common stock is a capitalaccount and it is increased by $30,000. Therefore, common stock account is credited with $30,000.
  • Additional Paid-in Capital from Common Stock is a capital account and it is increased by $270,000. Therefore, additional paid-in capital from common Stock is credited with $270,000.

Record issuance of common stock:

Date Account Debit ($) Credit ($)
July, 9 Building 700,000
Common Stock (100,000×$1) 100,000
Additional Paid-in Capital from Common Stock ($700,000$100,000) 600,000
(To record issue of common stock in exchange of building

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Chapter 14 Solutions

Principles of Accounting Volume 1
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