Question

Part A During its first year of operations, the McCollum Corporation entered into the following transactions relating to shareholders' equity. The corporation was authorized to issue 110,000,080 common shares, $1 par per share Required Prepare the appropriate journal entries to record each transaction Jan 9 Issued 90,000,000 common shares for $28 per share. Mar. 11 Issued 5,900 shares in exchange for custom-made equipment. McCollum's shares have traded recently on the stock exchange at $28 per share Part B A new staff accountant for the McCollum Corporation recorded the following journal entries during the second year of operations McCollum retires shares that it reacquires (restores their status to that of authorized but unissued shares) Date Jan. 12 Land Debit 4,000,000 General Journal Credit Paid-in capital-donation of land 4,000,000 Sept. 1 Common stock 4,000,000 128,000,000 Retained earnings Cash 132,000,000 Dec. Cash 68,000,000 Common stock Gain on sale of previously issued shares 2,000,000 66,000,000 Required Prepare the journal entries that should have been recorded for each of the transactions The shareholders' equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2017: ( in millions) $ 280 1,680 Shareholders' Equity Common stock, 280 million shares at $i par Paid-in capital-excess of par Paid-in capital-share repurchase Retained earnings 1,800 Required 1. During 2018, TNL Systems reacquired shares of its common stock and later sold shares in two separate transactions. Prepare the entries for both the purchase and subsequent resale of the shares assuming the shares are (a) retired and (b) viewed as treasury stock a. On February 5, 2018, TNL Systems purchased 8 million shares at $10 per share. b. On July 9, 2018, the corporation sold 2 million shares at $12 per share c. On November 14, 2020, the corporation sold 2 million shares at $7 per share. 2. Prepare the shareholders' equity section of TNL Systems' balance sheet at December 31, 2020, comparing the two approaches. Assume all net income earned in 2018-2020 was distributed to shareholders as cash dividends Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below Req 1A Req 1B Req 2 Prepare the shareholders' equity section of TNL Systems' balance sheet at December 31, 2020, comparing the two approaches. Assume all net income earned in 2018-2020 was distributed to shareholders as cash dividends. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Shareholder's Equity $ in millions Treasury stock Retirement Paid-in capital Common stock Paid-in capital-excess of par Retained earnings Less: Treasury stock Total shareholders' equity $ 280 280 1,680 1,800 40) $3,760 3,720 1,680 1,800 KReq 1B Req 2

Answer 1

McCollum Corporation Prepare the appropriate journal entries to record each transaction Journal Enteries Debit in Credit in $ 2520000000 Date Particulars Jan-09 Cash a/c Dr. To Common stock To PIC in excess of par (Common stock issued for premium) Mar-11 Equipment a/c Dr 118000 To Common stock To PIC in excess of par 5900 112100 (Common stock issued for Equipment) 5900 x 20 118000 PART B Donations should be recorded as revenue. Therefore Jan-12 Land a/c Dr 4000000 To Revenue from donation of land 4000000 When stock is retired, paid in capital created when the stock is issued should first be reduced. Only then should retained earnings be debited. Therefore Common stock a/c Dr PIC in excess of par a/c Dr Retained earnings a/c Dr Sep-01 4000000 To Cash 132000000 4000000 x 1 = 4000000: 4000000 x 27-108000000 Corporations should never recognize gains or losses in dealings with stock. Therefore, the gain should not have been credited. Rather, paid-in capital in excess of par should have been credited for the excess of the amount received over the par value of the stock. Dec-01 Cash a/c Dr. 68000000 To Common stock 2000000 To Gain on sale of previously issued shares