Final answer:
Journalizing stock transactions involves recording stock issuance above par value, purchasing treasury stock, and selling treasury stock at both above and below cost. Depending on the transaction, the company will debit and credit accounts like Cash, Common Stock, Treasury Stock, Paid-in Capital, and possibly Retained Earnings.
Step-by-step explanation:
To journalize the stock transactions for Careful Driving School, Inc., we'll follow accounting principles for each event they recorded.Issuance of Common Stock
On March 4, the company issued 27,000 shares at $10 each, which is above the par value of $1. The entry is:
- Debit Cash $270,000 (27,000 shares × $10)
- Credit Common Stock $27,000 (27,000 shares × $1 par value)
- Credit Paid-in Capital in Excess of Par $243,000 ($270,000 - $27,000)Purchase of Treasury Stock
On May 22, the company bought back 1,300 shares:
- Debit Treasury Stock $16,900 (1,300 shares × $13)
- Credit Cash $16,900Sale of Treasury Stock
On September 22, 500 shares were sold at $23 per share:
- Debit Cash $11,500 (500 shares × $23)
- Credit Treasury Stock $6,500 (500 shares × $13 cost)
- Credit Paid-in Capital from Treasury Stock $5,000
On October 14, 800 shares were sold at $9 per share which is below their cost. Assuming they cannot debit 'Paid-in Capital from Treasury Stock' directly or it is not enough to cover the difference, the entry is:
- Debit Cash $7,200 (800 shares × $9)
- Debit Paid-in Capital from Treasury Stock $5,000
- Debit Retained Earnings $3,400 ($10,400 book value - $7,200)
- Credit Treasury Stock $10,400 (800 shares × $13 cost)