Lecture 04: Share Capital. [Corporation Accounting]

Sir Win - Accounting Lectures
26 Nov 202021:46

Summary

TLDRIn this accounting lecture, the focus is on the initial issuance of shares for Amity Inc., detailing various transactions throughout 2021. The instructor explains how to record these transactions using both the memorandum method and journal entry method, covering subscriptions, share premiums, treasury shares, and income allocations. Key transactions include issuing shares, receiving subscription payments, and recognizing retained earnings, all while adhering to proper accounting practices. This comprehensive guide serves as an essential resource for understanding share capital accounting.

Takeaways

  • 😀 Amity Inc. was authorized to issue 500,000 shares at a par value of 10 pesos each.
  • 😀 The first transaction involved selling subscriptions for 25,000 shares at a subscription price of 15 pesos per share, with one-third received as down payment.
  • 😀 For subscription accounting, cash received is debited, while subscription receivable and share premium accounts are credited.
  • 😀 The organization expense for incorporating the business was recorded when 1,000 shares were issued in exchange for services.
  • 😀 Installment payments on subscriptions were recognized as cash was received, reducing subscription receivable accordingly.
  • 😀 The exchange of shares for furniture was recorded at fair market value, impacting both asset and equity accounts.
  • 😀 Treasury shares were reacquired at cost and are recorded as a reduction in equity, with cash credited.
  • 😀 New subscriptions were issued for shares at different subscription prices, affecting subscription receivable and share premium.
  • 😀 Reissuing treasury shares involves debiting cash and crediting the treasury shares account at cost.
  • 😀 Year-end closing entries for income are made by debiting income summary and crediting retained earnings.

Q & A

  • What is the main focus of the lecture?

    -The lecture focuses on accounting for share capital, specifically the initial issuance of shares by Amity Inc.

  • What transactions occurred on February 1, 2021?

    -Amity Inc. sold subscriptions for 25,000 shares at a price of 15 pesos per share, receiving one-third of the total subscription price as a down payment.

  • How is the share capital calculated during the subscription process?

    -The total subscription amount is calculated by multiplying the number of shares by the subscription price, and the subscribed ordinary shares are measured at par value.

  • What journal entries are made for the subscription received on February 1?

    -Debit Subscription Receivable for 375,000 pesos, credit Subscribed Ordinary Shares for 250,000 pesos, and credit Share Premium for 125,000 pesos.

  • What entry is recorded on March 9 regarding incorporation?

    -On March 9, Amity issued 1,000 shares as payment for organization expenses, debiting Organization Expense for 15,000 pesos and crediting Ordinary Shares for 10,000 pesos, while the remaining amount goes to Share Premium.

  • How does Amity record payments received for subscriptions?

    -Payments received are recorded by debiting Cash and crediting Subscription Receivable, reflecting the collection of the outstanding subscription price.

  • What is the significance of treasury shares in the lecture?

    -Treasury shares are reacquired shares held by the company, and their cost is debited when purchased and credited when reissued.

  • What transaction took place on May 19, 2021?

    -Amity exchanged 200 shares for furniture valued at 3,800 pesos, debiting Furniture for the fair market value and crediting Ordinary Shares for the par value.

  • What are the journal entries for the final installment of subscription payments?

    -The final installment on June 3 is recorded by debiting Cash for 125,000 pesos and crediting Subscription Receivable for the same amount, followed by the issuance of shares.

  • How is retained earnings affected at year-end?

    -At year-end, the income summary is closed to retained earnings, recording the income of 250,000 pesos by debiting Income Summary and crediting Retained Earnings.

Outlines

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Keywords

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Related Tags
AccountingShare CapitalJournal EntriesCorporate FinanceFinancial TransactionsAmity Inc.InvestmentBusiness EducationCase StudyFinancial Analysis