Question

On June 1, Tucker Inc. issues 3,000 shares of no-par common stock at a cash price of $7 per share.

Journalize the issuance of the shares. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
June 1

Answer 1

Concepts and reason

Transaction: A transaction in business refers to any events that affect the financial position of the business that can be reliably measured in monetary terms. A business transaction affects the accounting equation.

Journal entry: Journal is the book of original entry, where all the monetary transactions are recorded date-wise with the debit and credit entry. The record of business transactions in a chronological order in the journal is referred to as journal entry. Journal entry is represented in the form of a table with the Date, Accounts Titles and Explanation, Reference Number, Debit, and Credit columns.

Rules of debit and credit: The category of accounts determines how the increases and decreases are recorded in the said account. In other words, the account category determines the rule of debit and credit for that particular account. The following are the rules of debit and credit:

1.Debit increases all asset and expenses accounts. Debit decreases all liabilities, revenues and stockholders’ equity account.

2.Credit increases all liabilities, revenues and stockholders’ equity account. Credit decreases all asset and expense accounts.

Normal balance of an account: Normal balance of an account refers to that side of the account where the increase in the account is recorded. Normal balance means, the usual or natural balance of a particular account. All assets accounts have normal debit balances and all liabilities accounts have normal credit balances. Revenue/Income account normally have credit balances, expense account normally have debit balances.

Fundamentals

Accounting Equation: This is a mathematical equation, which represents the association between assets, liabilities and stockholders’ equity. This is also called as balance sheet equation. It is represented as follows:

Asset: The source, which is possessed or controlled to generate income in the future, is known as an asset. This is a permanent account because these accounts are carried forward from one financial year to the other.

Liability: Liability is an agreement made by a company to pay a certain amount for the goods or services received by the company in the past. This is a permanent account because these accounts are carried forward from one financial year to the other.

Stockholders’ equity: Stockholders’ equity refers to the shareholders claims on the assets or resources of a company, and so known as net assets of the company, which is assets minus liabilities. It is also known as Owner’s equity.

Revenue: Revenue is the total income earned by an organization by selling goods or rendering services.

Expense: Expense is the cost borne by a company to produce and sell the goods and services to the customers.

The format of journal entry is shown below:

Prepare journal entry for the issuance of shares:

Working note:

Calculate the amount of issuance of shares of no par common stock:

Ans: