An inexperienced accountant for Olsen Corporation made the following entries. July 1 Cash 240,000 Common Stock 240,000 (Issued 16,000 shares of no-par common stock, stated value $10 per share) Sept. 1 Common Stock 30,000 Retained Earnings 6,000 Cash 36,000 (Purchased 2,000 shares issued on July 1 for the treasury at $18 per share) Dec. 1 Cash 20,000 Common Stock 15,000 Gain on Sale of Stock 5,000 (Sold 1,000 shares of the treasury stock at $20 per share)
(a). On the basis of the explanation for each entry, prepare the entry that should have been made for the transactions.
(b). Prepare the correcting entries that should be made to correct the accounts of Chetola Corporation. (Do not reverse the original entry.)

A.

July 1

Dr Cash $240,000

Cr Common Stock $160,000

Cr Paid in Capital in excess of stated value common stock $80,000

Sept. 1

Dr Treasury stock $36,000

Cr Cash 36,000

Dec. 1

Dr Cash 20,000

Cr Treasury Stock $18,000

Cr Paid in Capital in excess of stated value common stock $2,000

B. July 1

Dr Common stock $80,000

Cr Paid in Capital in excess of stated value common stock $80,000

Sept. 1

Dr Treasury Stock $36,000

Cr Common stock $30,000

Cr Retained earning $6,000

Dec. 1

Dr Common stock $15,000

Dr Gain on sale of stock $5,000

Cr Treasury Stock $18,000

Cr Paid in capital from Treasury stock $2,000

Explanation:

A. Preparation of the entry that should have been made for the transactions.

July 1

Dr Cash $240,000

Cr Common Stock $160,000

(Issued 16,000 shares of no-par common stock, stated value $10 per share)

Cr Paid in Capital in excess of stated value common stock $80,000

($240,000-$160,000)

Sept. 1

Dr Treasury stock $36,000

Cr Cash 36,000

(Purchased 2,000 shares issued on July 1 for the treasury at $18 per share)

Dec. 1

Dr Cash 20,000

(Sold 1,000 shares of the treasury stock at $20 per share)

Cr Treasury Stock $18,000

(Sold 1,000 shares of the treasury stock at $18 per share)

Cr Paid in Capital in excess of stated value common stock $2,000

($20,000-$18,000)

B. Preparation of the correcting entries that should be made to correct the accounts of Chetola Corporation

July 1

Dr Common stock $80,000

Cr Paid in Capital in excess of stated value common stock $80,000

($240,000-$160,000)

Sept. 1

Dr Treasury Stock $36,000

(Purchased 2,000 shares issued on July 1 for the treasury at $18 per share)

Cr Common stock $30,000

Cr Retained earning $6,000

Dec. 1

Dr Common stock $15,000

Dr Gain on sale of stock $5,000

Cr Treasury Stock $18,000

(Sold 1,000 shares of the treasury stock at $18 per share)

Cr Paid in capital from Treasury stock $2,000

($15,000+$5,000-$18,000)