In order to encourage employee ownership of the company’s $1 par common shares,
ID: 2564328 • Letter: I
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 through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During March, employees purchased 35,000 shares at a time when the market price of the shares on the New York Stock Exchange was $16 per share.
Prepare the appropriate journal entry to record the March purchases of shares under the employee share purchase plan. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Record the purchases of shares under the employee share purchase plan.
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 through payroll deduction. There are no brokerage fees and shares can be purchased at a 10% discount. During March, employees purchased 35,000 shares at a time when the market price of the shares on the New York Stock Exchange was $16 per share.
Explanation / Answer
Number of shares issued 35,000
Par value – per share $1
Total Par Value of common stock $35,000 (35,000 x $1)
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Number of shares 35,000
Market price – per share $16
Total market value of shares $560,000 (35,000 x $16)
Less: Total Value of common stock $35,000
Paid in capital – in excess of par $525,000
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Total market value of shares $560,000
Less: Discount 10% $56,000
Cash Received $504,000
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JOURNAL ENTRY
Debit Credit
Cash $504,000
Compensation Expense 56,000
Common Stock $35,000
Pain in capital – in excess of par $525,000
(Being issue of shares to employees)
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