In order to encourage employee ownership of the company\'s $1 par common shares,

Question

In order to encourage employee ownership of the company's $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company throught payroll deduction. There are no brokerage fees and shares can be purchased at a 15% discount. During March, employees purchased 50,000 shares at a time when the market price of the shares on the New York Stock Exchange was $12 per share. Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan.

Explanation / Answer

Bank A/c Dr 510,000

Employee Compensation Expenses A/c Dr 90,000

To Common Stock A/c 50,000

To Additional Paid in Capital A/c (Security Premium) 550,000

(Being Common stock issued to employee at discount)

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