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Main Ownership Distinction of Corporation, Partnership and Sole Proprietorship Corporation 1. 2. 3. Owners Ownership Account Equity Section of the Balance Sheet Income summary close to Several Share capital Shareholders Equity Partnership 2 or more Partners capital Partners capital Sole Proprietorship one Owners capital Owners capital

4.

Retained Earnings

Partners capital

Owners capital

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Organizational Expense:


Represents the expenses incurred in the formation of the corporation

E.g.
1. 2. 3. 4. 5.

Legal fees paid for drafting Articles of Incorporation and corporate by-laws Filing fees Underwriting fees Cost of printing stock certificates All expenses related to formation of the corporation

Debit Organizational Expense but if amount is material could be debited to organizational cost which is an asset account to be amortized over a number of years at the discretion of management

1.

Authorization

(authorized share capital or authorized capital stock)

2.

Sale

(share capital)

3.

Subscription

(subscribed share capital)

4. 5. 6.

Collection of subscription Issuance of certificate Reacquisition of shares

(treasury share)

CORPORATION 1)Authorized 2)Authorized 3)Reacquired either to be resold or retire Subscribed Collected

SHAREHOLDERS Sold & Issue Issued Issued

1. 2.

Authorized shares


Maximum number of shares a corporation may issue

Issued Share


Fully paid shares as evidence by issuance of a stock certificate

3.

Subscribed shares


Shares purchased by an investor subject to an installment payment contract

4.

Treasury share


Issued but reacquired by the corporation, no longer outstanding

5.

Outstanding shares


Issued and still held by the shareholders

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6.

Share Capital


Credited when stock certificate is issued for the total shares collected at par value

7.

Share Premium


This account is credited for contributions in excess of the par value

8.

Subscription Receivable
  

Debited at the subscription price based on the number of shares subscribed and credited when collected Current if collectible within one year If no call date it is treated as a contra Shareholders Equity account to be deducted from Subscribed Share Capita to arrived at Paid In Capital

Methods of Accounting for Shares:

#1 Memorandum Entry Method

#2 Journal Entry Method

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Authorized shares is recorded using a memorandum entry only When shares are issued a credit to share capital account title is recorded

Authorized shares is recorded by debiting unissued share capital and crediting authorized share capital When shares are issued a credit to unissued share capital account title is recorded

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1.

Recognition of the authorized stock Issuance of the capital

 Memo. Entry Method share capital  Journal Entry Method Unissued share

2.

capital

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1.) FMV of the asset received

2.) FMV of share capital issued

The asset received in exchange for the share capital must be valued using the following order of priority:

3.) asset will be base on an independent appraisal

4.) at par or stated value

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Liability account is debited Corresponding credit to unissued share capital or share capital account If liability is more than the share capital, the excess is credited to share premium or share capital in excess of stated value account

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organizational expenses account is debited Corresponding credit to unissued share capital or share capital account valued at par or stated value

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If expense is more than the share capital, the excess is credited to share premium or share capital in excess of stated value account If expense is less than the shares being issued, it is adjusted to make it equal to the share capital being issued.
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Sell at public options: Highest bidder

 One who is willing to pay the uncollected balance of the subscription  Plus accrued interest, advertising cost and other expenses to the sale of the delinquent share  The one who bids the lowest number of share and will pay the total amount of subscription plus incidental expenses
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If the is no bidder the corporation itself will acquire the delinquent share as treasury share

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Debit cash or property Credit share capital from donation Any expense relating to the donation should be offset against the share capital from donation account

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