Williamson Corporation was organized to operate a tax preparation business. The charter authorized the following stock: common stock, $2 par value, 80,000 shares authorized. During the first year, the following selected transactions were completed:

a. Sold 50,000 shares of common stock for cash at $50 per share.

b. Repurchased 2,000 shares from a stockholder for cash at $52 per share.

Required:

1. Give the journal entry required for each of these transactons.

2. Prepare the stakeholder's equity section as it should be reported on the year-end balance sheet.

Answer: Williamson Journal $

Date. Description. Dr. Cr

Cash Dr. 2,500,000

Issued share Cr. 100,000

Share premium Cr 2,400,000

Narration. Sales of 50,000 share of $2 nominal value at $52.

Share premium Dr 100,000

Issued share Dr Dr 4000

Cash. Cr. 104,000

Narration. Repurchase of issued share of $2 nominal value at $52.

Balance Sheet.,$

Authorised Share

80,000 ordinary share

at $2 each 160,000

Issued share capital

48,000 ordinary share at

$2 each. 96,000

Share premium. 2,300,000

Explanation:

The share stated in the charter is authorised share capital which is the maximum a company can issue out, though it's allowed to issue out less than the authorised share capital, whatever amount it issued out it's called issued share capital.

A share is said to be issued at a premium when the issued value as for this example $50 is greater than the nominal value of $2 or at a discount if the issued price is less than the nominal or authorised value.

A firm can equally repurchase it's shares at an equal, higher or lower value to the share authorised value and this gives no effect, higher and lower effect respectively to the share premium balance.