Chapter 7_Accounting for a Corporation_(February 6, 2011)

8/3/2019 Chapter 7_Accounting for a Corporation_(February 6, 2011)

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Main Ownership Distinction of Corporation, Partnership and SoleProprietorship

Corporation Partnership SoleProprietorship

1. Owners Several 2 or more one

2. Ownership

Account

Share capital Partners capital Owners

capital

3. Equity

Section ofthe

BalanceSheet

Shareholders

Equity

Partners capital Owners

capital

4. Incomesummaryclose to

Retained Earnings Partners capital Ownerscapital

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Organizational Expense:

Represents the expenses incurred inthe formation of the corporation

E.g.1. Legal fees paid for drafting Articles of

Incorporation and corporate by-laws

2. Filing fees

3. Underwriting fees

4. Cost of printing stock certificates

5. All expenses related to formation of thecorporation

Debit Organizational Expense but if

amount is material could be debited toorganizational cost which is an assetaccount to be amortized over a number of

years at the discretion of management 3


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1. Authorization

(authorized share capital orauthorized capitalstock)

2. Sale (share capital)

3. Subscription

(subscribed share capital)

4. Collection of subscription

5. Issuance of certificate

6. Reacquisition of shares

(treasury share) 4


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CORPORATION

1)Authorized

3)Reacquiredeither to be

resold or retire

2)Authorized Subscribed Collected

Issued

Sold & Issue

SHAREHOLDERS

Issued


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1. Authorized shares Maximum number of shares a corporation may issue

2. Issued Share Fully paid shares as evidence by issuance of a stock

certificate

3. Subscribed shares Shares purchased by an investor subject to an installment

payment contract

4. Treasury share Issued but reacquired by the corporation, no longer

outstanding

5. Outstanding shares Issued and still held by the shareholders

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6. Share Capital Credited when stock certificate is issued for the total

shares collected at par value

7. Share Premium This account is credited for contributions in excess of the

par value

8. Subscription Receivable Debited at the subscription price based on the number

of shares subscribed and credited when collected

Current if collectible within one year If no call date it is treated as a contra Shareholders

Equity account to be deducted from Subscribed ShareCapita to arrived at Paid In Capital

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Methods of Accounting for Shares:

#1

Memorandum EntryMethod

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#2Journal Entry

Method


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Authorized shares is recorded using a

memorandum entry only

When shares are issued a credit toshare capital account title is recorded

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Authorized shares is recorded by

debiting unissued share capital and

crediting authorized share capital

When shares are issued a credit to

unissued share capital account title is

recorded

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1. Recognition of the authorized stock

2. Issuance of the capital Memo. Entry Method share capital

Journal Entry Method Unissued sharecapital

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The asset received in

exchange for theshare capital must be

valued using thefollowing order of

priority:

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1.) FMV of the asset

received

2.) FMV of share

capital issued

3.) asset will be

base on anindependent

appraisal

4.) at par or stated

value


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Liability account is debited

Corresponding credit to

unissued share capital orshare capital account

If liability is more than the share

capital, the excess is credited toshare premium orshare

capital in excess of statedvalue account

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organizational expenses accountis debited

Corresponding credit to unissuedshare capital orshare capitalaccount valued at par or statedvalue

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If expense is more than the sharecapital, the excess is credited to

share premium orshare capital inexcess of stated value account

If expense is less than the sharesbeing issued, it is adjusted to make itequal to the share capital beingissued.

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Sell at public options:

Highest bidder

One who is willing to pay theuncollected balance of the subscription

Plus accrued interest, advertising cost

and other expenses to the sale of the

delinquent share The one who bids the lowest number of

share and will pay the total amount of

subscription plus incidental expenses

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If the is no bidderthe corporationitself will acquire the delinquent

share as treasury share

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Debit cash or property

Credit share capital from

donation

Any expense relating to thedonation should be offset against

the share capital from donationaccount

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Documents

Chapter 7_Accounting for a Corporation_(February 6, 2011)