Question

E15.8B (L0 1,2) (Correcting Entries for Equity Transactions) Global Air Inc. recently hired a new accountant with limited real-world experience in corporate accounting. Prior to starting the new job, the accountant was very busy and was unable to review any texts on corporation accounting. During the first month, he made the following entries for the corporation’s capital stock: Oct. 5 Cash 39,000 Capital Stock 1,000 Gain on Sale of Stock 38,000 (Issued 1,000 shares of $1 par value common stock at $39 per share) 12 Cash 330,000 Capital Stock 330,000 (Issued 3,000 shares of $100 par value preferred stock at $110 per share) 13 Capital Stock 20,000 Cash 20,000 (Purchased 500 shares of common stock for the treasury at $40 per share) 26 Cash 22,500 Capital Stock 500 Gain on Sale of Stock 22,000 (Sold 500 shares of treasury stock at $45 per share) Instructions On the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions

Answer 1

Correcting Entries:

Date	Account title and explanation	Debit	Credit
Oct.5	Cash (1,000 x $39)	$39,000
	Common stock (1,000 x $1 par)		$1,000
	Paid-in capital in excess of par-Common		$38,000
	[To record issuance of common stock]
Oct.12	Cash (3,000 x $110)	$330,000
	Preferred stock (3,000 x $100 par)		$300,000
	Paid-in capital in excess of par - preferred		$30,000
	[To record issuance of preferred stock]
Oct.13	Treasury stock (500 x $40 cost)	$20,000
	Cash		$20,000
	[To record purchase of own shares]
Oct.26	Cash (500 x $45)	$22,500
	Treasury stock (50 x $40 cost)		$20,000
	Paid-in capital in excess from treasury stock		$2,500
	[To record sale of treasury stock]