Question

During its first year of operations, Cole's Electronics Inc. completed the following transactions relating to shareholders' equity.
Jan. 5: Issued 1,000,000 shares of common stock for $25 per share.
Feb. 12: Issued 20,000 shares of common stock to accountants for professional services for which they were invoiced $50,000. The articles of incorporation authorize 5,000,000 shares of common stock with a par value of $1 per share and 1,000,000 preferred shares with a par value of $100 per share.

Record the above transactions in general journal form.

Answer 1

Answer:

Jan 5  Cash                                                  $25,000,000 Dr

              Common Stock                                   $1,000,000 Cr

              Paid in Capital-in excess of par         $24,000,000 Cr

Feb 12 Professional services expense account   $50,000 Dr

               Common Stock                                             $20,000 Cr

               Paid in Capital-in excess of par                   $30,000 Cr

Explanation:

The par value of common stock is $1 per share which means any amount received above the par value in exchange of stock will be credited to paid in capital'in excess of par account.

When stock is issued at $25, the par value is $1 and paid in capital in excess of par will be $25 - $1 = $24 per share

Total value of issue on Jan 5 = 1000000 * 25 = 25000000

Paid in capital in excess of par = 24 * 1000000 = 24000000

When shares are issued against the payment of an expense, the expense will be recorded and debited and against it common stock and paid in capital is credit.

The par value of 20000 shares at $1 = $20000

The remaining out of 50000 will be credited to paid in capital.