Question

n order to encourage employee ownership of the company’s $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During March, employees purchased 20,000 shares at a time when the market price of the shares on the New York Stock Exchange was $10 per share. Required: Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Account Titles and Explanation	Debit($)	Credit ($)
Cash ($10*90%*20,000)	1,80,000
Compensation expense ($10*10%*20,000)	20,000
Common stock ($1 x 20,000)		20,000
Paid-in capital—in excess of par ($9*20,000)		1,80,000
(To record the purchase of shares under employee share purchase plan)

Answer 2

To record the March purchases of shares under the employee share purchase plan, we need to account for the purchase of shares at a 10% discount. Here's the appropriate journal entry:

Date: March XX, 20XX

Debit: Share Purchase Plan Expense $18,000 [($10 * 20,000) * 0.10] Debit: Share Purchase Plan Payable $182,000 [($10 * 20,000) - $18,000] Credit: Cash $200,000 [($10 * 20,000)]

Explanation:

• The Share Purchase Plan Expense account represents the cost of providing the shares to employees at a 10% discount. It is debited for $18,000, which is calculated as ($10 * 20,000) * 0.10.

• The Share Purchase Plan Payable account represents the liability for the shares sold to employees at a discount. It is debited for $182,000, which is calculated as ($10 * 20,000) - $18,000.

• The Cash account is credited for $200,000, which represents the cash received from employees for purchasing the shares.

Please note that the amounts in this example are calculated based on the given information, but the actual amounts may differ depending on the specific details of the transaction.