Accounting for stock subscriptions

3. Stock subscription contract cancellation

If the investor does not pay off the receivable, the corporationís subscription policy will determine what becomes of the down payment. If the cash is returned, the entire original entry is reversed. If stock is issued for the amount paid, the corporation will make the following journal entry. Note that $800 would have been the sale price for 10 shares, so what remains after the journal entry is the $800 cash, $100 of common stock, and $700 of additional paid-in capital.

Account Names

Debits

Credits

Common stock subscribed

1,000

 

Additional paid-in capital

6,300

 

†††††† Subscription receivable

 

7,200

†††††† Common stock

 

100

If the corporation keeps the down payment as a penalty for breaking the contract, the following journal entry would be recorded. Here, the only thing remaining is the $800 cash and $800 in additional paid-in capital.

Account Names

Debits

Credits

Common stock subscribed

1,000

 

Additional paid-in capital

6,200

 

†††††† Subscription receivable

 

7,200

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