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 :Subscription...... $22500.00 Treasury Stock............ To Capital 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...... Machinery... $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 à 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 $5000— entry 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 transactions, 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, hold the proper preliminary meetings, and procure a Charter of Incorporation. The books used in addition to the regular account books are: the Subscription Book, Installment Book, Installment Scrip Book, Certificate of Stock Book, Transfer Book, and Stock Ledger. The bookkeeper having closed the books as instructed, we will assume the Assets and Liabilities as follows: Cash...... Assets. Liabilities. Accts. Pay..... ...... $32,800.00 $15,000.00 If the old books are to be used the following entry will open them: Treasury Stock............ 150,000.00 To Capital Stock........... $200,000.00 This entry takes the partners' accounts out of the General Ledger and opens the Treasury Stock account, also the full authorized capital. The partners will then be Credited in the Stock Ledger from Certificate of Stock Book for their respective shares of stock. All the other accounts remain in the General Ledger in exactly the same condition as for the old firm. When any of the Treasury Stock is sold for cash, Debit Cash and Credit Treasury Stock. If subscribed, to be paid for in installments, as per the above agreement, Debit Subscription and Credit Treasury Stock. When the installments are paid, Debit Cash and Credit Subscription. If a New Set of Books is to be Opened, The first entry in the old books should be: The Beck-Carr Mfg. Co...... $107,800.00 |