Journal Entry Review Questions 5



Q50. Review questions 5
(1) Entity A issued 20,000 shares of common stock at $26 per share. The par value of common stock is $1 per share.
(2) Entity B declared a cash dividend: $1.20 per share on 400,000 shares of common stock.
Prepare journal entries to record these transactions.

A50. Issuance of common stock and cash dividend

(1) Entity A issued 20,000 shares of common stock at $26 per share. The par value of common stock is $1 per share.

debit credit
Cash 520,000
    Common stock, par value 20,000
    Additional paid-in capital 500,000

[Note]
1. Par value portion is recorded in the common stock, par value account.
2. Issue price over the par value is recorded in the additional paid-in capital account.
3. Common stock, par value = 20,000 shares x $1 par value = $20,000
4. Additional paid-in capital = $520,000 – $20,000 = $500,000

(2) Cash dividend declared: $1.20 per share on 400,000 shares of common stock.

  Debit Credit
Retained earnings (or cash dividend) 480,000  
     Dividends payable   480,000

[Note]
1. Dividends payable = 400,000 shares x $1.20 per share = $480,000
2. When a cash dividend is declared, retained earnings account decreases and the dividends payable account increases.

 

 

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Journal Entry Review Questions 4



Q49. Review questions 4
(1) Entity A issued $800,000 bonds at a discount and received $780,000 in cash.
(2) Entity B issued $900,000 bonds at a premium and received $950,000 in cash.
Prepare journal entries to record these transactions.

A49. Bonds payable is recorded on the credit side.

(1) Entity A issued $800,000 bonds at a discount and received $780,000 in cash.

  Debit Credit
Cash 780,000  
Discount on bonds payable 20,000  
     Bonds payable   800,000

[Note]
1. Increase in discount on bonds payable (contra-liability): debit
2. Discount on bonds payable is a contra-liability account, which is subtracted from bonds payable.
3. Discount on bonds payable is amortized over the life of bonds payable using the effective interest method.

(2) Entity B issued $900,000 bonds at a premium and received $950,000 in cash.

  Debit Credit
Cash 950,000  
     Bonds payable   900,000
     Premium on bonds payable   50,000

[Note]
1. Increase in premium on bonds payable (liability): credit
2. Premium on bonds payable is a liability account, which is added to bonds payable.
3. Premium on bonds payable is amortized over the life of bonds payable using the effective interest method.

 

 

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Journal Entry Review Questions 3



Q48. Review questions 3
(1) Entity A recorded annual depreciation expense of $4,300.
(2) Entity B accrued $9,200 salaries expense to be paid on the 5th of the following month.
Prepare journal entries to record these transactions.

A48. Depreciation and salaries expense

(1) Depreciation expense = $4,300

  Debit Credit
Depreciation expense 4,300  
     Accumulated depreciation   4,300

[Note]
Increase in accumulated depreciation (contra-asset): credit

(2) Salaries expense accrued during the period = $9,200

  Debit Credit
Salaries expense 9,200  
     Salaries payable   9,200

[Note]
Increase in salaries payable (liability): credit

 

 

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