Answer:
A.
July 1
Dr Cash $240,000
Cr Common Stock $160,000
Cr Paid in Capital in excess of stated value common stock $80,000
Sept. 1
Dr Treasury stock $36,000
Cr Cash 36,000
Dec. 1
Dr Cash 20,000
Cr Treasury Stock $18,000
Cr Paid in Capital in excess of stated value common stock $2,000
B. July 1
Dr Common stock $80,000
Cr Paid in Capital in excess of stated value common stock $80,000
Sept. 1
Dr Treasury Stock $36,000
Cr Common stock $30,000
Cr Retained earning $6,000
Dec. 1
Dr Common stock $15,000
Dr Gain on sale of stock $5,000
Cr Treasury Stock $18,000
Cr Paid in capital from Treasury stock $2,000
Explanation:
A. Preparation of the entry that should have been made for the transactions.
July 1
Dr Cash $240,000
Cr Common Stock $160,000
(Issued 16,000 shares of no-par common stock, stated value $10 per share)
Cr Paid in Capital in excess of stated value common stock $80,000
($240,000-$160,000)
Sept. 1
Dr Treasury stock $36,000
Cr Cash 36,000
(Purchased 2,000 shares issued on July 1 for the treasury at $18 per share)
Dec. 1
Dr Cash 20,000
(Sold 1,000 shares of the treasury stock at $20 per share)
Cr Treasury Stock $18,000
(Sold 1,000 shares of the treasury stock at $18 per share)
Cr Paid in Capital in excess of stated value common stock $2,000
($20,000-$18,000)
B. Preparation of the correcting entries that should be made to correct the accounts of Chetola Corporation
July 1
Dr Common stock $80,000
Cr Paid in Capital in excess of stated value common stock $80,000
($240,000-$160,000)
Sept. 1
Dr Treasury Stock $36,000
(Purchased 2,000 shares issued on July 1 for the treasury at $18 per share)
Cr Common stock $30,000
Cr Retained earning $6,000
Dec. 1
Dr Common stock $15,000
Dr Gain on sale of stock $5,000
Cr Treasury Stock $18,000
(Sold 1,000 shares of the treasury stock at $18 per share)
Cr Paid in capital from Treasury stock $2,000
($15,000+$5,000-$18,000)
The Preparation of the journal entries for Olsen Corporation's transactions is as follows:
a) This is how the journal entries should have been made:
July 1: Debit Cash $240,000
Credit Common Stock $160,000
Credit Additional Paid-in Capital $80,000
Sept. 1 Debit Treasury Stock $20,000
Debit Additional Paid-in Capital $16,000
Credit Cash $36,000
Dec. 1 Debit Cash $20,000
Credit Treasury Stock $10,000
Credit Additional Paid-in Capital $10,000
b) Correcting Entries:
For July 1:
Debit Common Stock $80,000
Credit Additional Paid-in Capital $80,000
For Sept. 1:
Debit Treasury Stock $20,000
Debit Additional Paid-in Capital $16,000
Credit Common Stock $30,000
Credit Retained Earnings $6,000
For Dec. 1:
Debit Common Stock $15,000
Debit Gain on Sale of Stock $5,000
Credit Treasury Stock $10,000
Credit Additional Paid-in Capital $10,000
Data Analysis:
July 1: Cash $240,000 Common Stock $160,000 Additional Paid-in Capital $80,000
16,000 shares, $10 stated value per share at $15 per share.
Sept. 1 Treasury Stock $20,000 Additional Paid-in Capital $16,000 Cash $36,000
2,000 shares Treasury stock at $18 per share
Dec. 1 Cash $20,000 Treasury Stock $10,000 Additional Paid-in Capital $10,000
1,000 shares of Treasury Stock at $20 per share
b) Correcting Entries:
For July 1:
Common Stock $80,000 Additional Paid-in Capital $80,000
For Sept. 1:
Treasury Stock $20,000 Additional Paid-in Capital $16,000 Common Stock $30,000 Retained Earnings $6,000
For Dec. 1:
Common Stock $15,000 Gain on Sale of Stock $5,000 Treasury Stock $10,000 Additional Paid-in Capital $10,000
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