E3-7 Art Wyatt Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, the accountant made the following entries for the corporation's capital stock.
Please see the attached file for full problem description.
On the basis of the explanation for each entry, prepare the entry that should have been made for the capital stock transactions.
SOLUTION This solution is FREE courtesy of BrainMass!
Here are your entries:
DR: Cash 144,000
CR: Gain on sale of Capital stock 84,000
CR: Capital stock 60,000
DR: Cash 60,000
CR: Gain on sale of Capital stock 10,000
CR: Capital stock 50,000
This entry looks good. I don't see anything wrong with it
Again, this entry looks good. The only thing that could possibly be wrong is related to the fact that it was treasury stock that was sold. If that is the case, then the original purchase value of $14/share would be used. The $5/share value that was used relates only to the common shares. There is a difference between common, preferred and treasury shares.
The entry would then be:
DR: Cash 7,500
CR: Capital Stock 6,000
CR: Gain on sale 1,500