Problem 2. Of the $100,000 unissued stock of Problem 1, we will assume that $50,000 is later subscribed for at 98, and $50,000 at 102.
Entries to make the record according to the [first method, Problem 1], are as follows:
| (a) Covering stock subscribed for at a discount: | |||
| Subscribers | 49,000.00 | ||
| Discount on Capital Stock | 1,000.00 | ||
| Capital Stock Subscriptions | 50,000.00 | ||
| (b) For stock subscribed for at 102: | |||
| Subscribers | 51,000.00 | ||
| Premium on Capital Stock | 1,000.00 | ||
| Capital Stock Subscriptions | 50,000.00 | ||
Entries for payment of the subscription and issue of the stock follow the method of entry already shown on [page 342]. It will be observed that the Capital Stock Subscription and the Capital Stock accounts are always shown at par value.
Capital Stock on the Balance Sheet.—The net worth section of the balance sheet of a corporation will usually appear somewhat as follows for the capital stock items. Often, however, more detail is shown in connection with the surplus item. The student should note how full information is given concerning the capital stock.
| (1) | Net Worth | ||
| Represented by: | |||
| Capital Stock: | |||
| Authorized | $250,000.00 | ||
| Unissued | 100,000.00 | ||
| Issued and Outstanding | $150,000.00 | ||
| Premium on Capital Stock | 5,000.00 | ||
| Surplus | 60,000.00 | ||
| Total Net Worth | $215,000.00 | ||
Where the discount on stock has not been charged off against Surplus either because sufficient profits have not been reserved, or because, although sufficient profits have been reserved, it is deemed desirable to build up a larger balance of Surplus before charging off the discount, the net worth section will appear as follows:
| (2) | Net Worth | ||
| Represented by: | |||
| Capital Stock: | |||
| Authorized | $250,000.00 | ||
| Unissued | 100,000.00 | ||
| Issued and Outstanding | $150,000.00 | ||
| Surplus | 10,000.00 | ||
| $160,000.00 | |||
| Discount on Capital Stock | 15,000.00 | ||
| Total Net Worth | $145,000.00 | ||
Discount on capital stock should usually be shown as above, although one sometimes finds it listed among the assets on a balance sheet. This is not wholly objectionable unless it is set up under a title which does not indicate its true nature.
Instalments.—The subscription contract sometimes provides for payment by instalments. The corporation usually issues to all such subscribers a “call,” i.e., a notice that an instalment payment will come due at a given time. The subscriber is not considered delinquent until the call has been made and he has not responded. The accounts must therefore reflect the difference in status brought about by a “call.” This is accomplished by transferring the claim against the subscriber carried in Subscribers account to a new claim against him carried under Call account. The illustrations below show the accounts required and their handling.