Question

Darlington Inc., permits any of its employees to buy shares directly from the company. There are no brokerage fees and shares can be purchased at a 10% discount. During May, employees purchased 14,000 shares at a time when the market price of the shares was $10 per share.

Prepare the appropriate journal entry for the May purchase.

Record the employees' purchase of 14,000 shares, when the market price was $10 per share, at a 10% discount without any brokerage fees.

Answer 1

Dr Cash 126,000

Dr Compensation expense 14,000

Cr Common stock 140,000

Step-by-step explanation:

The 10% discount enjoyed by the employees must be recorded as compensation expense because they are a benefit that only employees are allowed to enjoy. Ordinary investors do not receive the same benefit.