This is incorrect. As stated before, let your opening entry give Capital Stock credit for full authorized capital, and let the Stock Ledger show amount of capital actually paid in. Ex. 187. W. E. Kneale and L. N. Gibbons formed a co-partnership January 1, 1893, investing and withdrawing as follows: W. E. Kneale. L. N. Gibbons. April 15, $3500 || Jan. 1, $8500 July 20, $2000 || Jan. 1, $10600 The firm was dissolved Jan. 1, 1894. Assets and Liabilities as follows: What is L. N. Gibbons to receive at dissolution, he sharing onethird of the gains and losses; interest allowed on all sums invested, and charged on all sums withdrawn by the partners; the notes both for and against the firm being taken at their present worth 5% allowed for bad or doubtful debts on the Personal accounts? Give full solution and entry to adjust the interest between the partners. What is a Partnership? Ex. 188. Ex. 189. Ex. 190. it contain? How are Partnerships distinguished? Define each. Ex. 191. What are Assets and Liabilities? What does the difference represent? Ex. 194. When is a firm Insolvent? How do you find each Partner's share of Profit or Loss, when the Loss or Gain is shared in proportion to each Partner's Investment? Ex. 196. How do you find each Partner's average Investment and share of the Profits, when the Losses and Gains are to be divided in proportion to each Partner's Investment and Time? Ex. 197. How do you adjust the Partners' accounts when the proportion of Profit or Loss is fixed and Interest is allowed on the Excess and charged on the Deficit of each Partner's required Investment? Ex. 198. How do you find the Net Capital of a firm at commencing, the Net Loss or Net Gain, the Assets and Liabilities being given, except the Investments? Ex. 199. How do you find the Insolvency at commencing? CHAPTER NINE. The Books of a Mercantile Firm Changed to Joint Stock Company. The Mdse., Personal Accounts, etc., due the firm taken in payment for stock. What are the Journal entries under the following conditions? Ex. 200. J. D. Ramsay, P. J. Leonard, W. W. Boynton, and J. C. Hale have been conducting business as partners, and have this day been incorporated into a Joint Stock Company, with a capital stock of $30,000.00, consisting of 300 shares, par value $100 each. The incorporators subscribe for stock in proportion to their interest in the old firm. J. D. Ramsay subscribes for 75 shares, P. J. Leonard 60 shares, W. W. Boynton 50 shares, and J. C. Hale 40 shares, leaving 75 shares unsubscribed. The old firm has no liabilities, and the incorporators pay for their stock with the assets of the old firm. To open the books of the company, make the following entry :— To Capital Stock...... bus ?? Treasury Stock.... 7500.00 $30000.00 Debit Subscription account for amount of stock subscribed, Debit Treasury Stock for amount held in the treasury for subsequent sales, and Credit Capital Stock account for full authorized capital. As the new company accept the assets of the old firm in payment for their subscription, Debit the Assets and Credit Subscription. This operation places the assets on the company's books; also closes the Subscription account. You may ask why it would not do as well to debit the assets in the first entry, instead of subscription. Practically it would amount to the same thing, but it is thought best to have entries on the Journal correspond with subscriptions in the Subscription Book. Again, in the formation of some companies there are no assets; hence the Subscription account. Suppose J. A, McCurdy buys 50 shares of stock and pays cash $2500.00 and his note 60 days for $2500.00; what entry? sales. Since this stock was held as Treasury Stock, we Credit it for all Explanations for Journal and Cash Book Entries. In all entries made upon the Journal or Cash Book, make a complete and full explanation of transactions, though it may require ten pages to do it. Very often controversies arise, and when transactions are thoroughly explained they are easier to adjust. Ex. 201. A Commercial Business is Incorporated into a Joint Stock Company, with a Capital of $60,000.00. They have $30,000 in Assets, but no Liabilities. The incorporators divide the majority of stock among themselves. What are the Journal entries? Assets as follows: Franchise is used instead of Subscription. When the subscrip tions are paid make this entry: Cash Dr. To Contingencies. Then Credit the stockholders in the Stock Ledger for same When the subscription is known it can be used to open the books. Yet it is not really necessary to use the Subscription account; any other term would answer as well; but when subscriptions are made and can be used, as in the preceding examples, it is deemed best to do so, because the Journal entry will then agree with the Subscription and Minute Books. Suppose the Assets of the company to be a steam engine, $30000, the opening entry could be : Machinery.... $60000.00 $60000.00 To Capital Stock........... There is no objection to the above entry. The machinery cost $30000.00, but it is entered up at its nominal value of $60000.00. It is not a speculative resource, therefore it matters not what value is placed upon it. It would also be proper to use this entry : Franchise........ $30000.00 $60000.00 To Capital Stock.......... Which is practically the same as the first entry given. It may happen that the stock is all taken and paid up, and the company still not have funds enough to operate. Each stockholder donates to the company a certain number of shares, to the amount of say $10000.00, for the purpose of raising more funds. In this case Debit Treasury Stock and Credit Working Capital. Should any of the donated shares be sold, Debit Cash and Credit Treasury Stock. The stockholders will surrender their original certificates of stock and receive new ones, less the number of shares donated, and be Debited in the Stock Ledger also for the number of shares donated. Suppose some of the Treasury Stock is sold at a discount, what In this entry stock has been sold at a discount of 50%. We debit Cash $1000 and Working Capital $1000, and credit Treasury Stock $2000. Many bookkeepers would feel justified in debiting Loss and Gain instead of Working Capital. It must be remembered that the company did not, practically or otherwise, lose $1000. It is not this sort of Loss and Gain that makes up the dividend of a corporation. If they had bought this stock at par, then sold at a discount or premium, the case would be somewhat different. Companies are not allowed to deal in their own stock. Reserved Fund Is a fund set aside for any special purpose, and should always represent actual cash. This cash should be taken from the general cash, and have a separate bank account, with extra Check and Bank Book. To create a Reserved Fund, make this entry: Reserved Fund To Cash (with full history). This entry takes the cash from the general cash account and places it in the Reserved Fund. To buy a plant, machinery or anything out of the Reserved Fund first take the amount required out of the Reserved Fund and place it into the common or general cash, as follows: Cash (posted from C. B.) To Reserve Fund. To buy the plant-say warehouse and lot $5000entry would be: Real Estate To Cash (full history, etc.) Suppose a dividend is to be paid out of the Reserved Fund, then: Then : Then : Cash (C. B.) To Reserved Fund (history). Dividend No. 3, 1894, To Cash (posted from C. B.) The above cash entries might be omitted from the Journal, as they can be as fully explained in the Cash Book. Numerous advantages are to be gained by giving a complete description of all such transac tions, which should be made upon the Journal. CHAPTER TEN. Partnership Books Changed to Joint Stock Co. The partnership of Beck, Carr & Co. was incorporated into a Joint Stock Company, with a capital stock of $200,000.00, consisting of 2000 shares, par value $100. Beck, Carr and French are to take stock at par for their net interest in the partnership, and the remainder of the stock is to be subscribed by other parties, whose subscriptions are to be paid in quarterly installments of 25%. What are the first steps to be taken by the firm? If the old books are to be used, what entry is required? If new books are to be opened, what entry? Also, what books are to be used in addition to the regular account books? Answers. The first steps to be taken by the firm will be to instruct the bookkeeper to close the books, divide the Losses and Gains according to Articles of Agreement, and bring down the balances of all Assets and Liabilities. They should then advertise the dissolution, |