EYK3_1 - E x t e n d Yo u r K n o w l e d g e 3 - 1 :...

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Extend Your Knowledge 3-1: Chapter 3 Corporate Supplement In Chapter 3 of the textbook you learned how to analyze and record transactions for a sole proprietorship. This supplement shows you how to analyze and record those transactions that are unique to a corporation, identiFed in the Chapter 2 Corporate Supplement as being: (1), investment by shareholders; (11), payment of dividends; and (12), required to record income tax expense for a corporation. 1. Investment by shareholders. Cash 101 (1) 10,000 Common Shares 307 10,000 (1) 11. Cash dividend. Cash Dividends 319 (11) 600 Cash 101 (1) 10,000 2,500 (2) (4) 2,200 1,000 (5) (9) 1,900 700 (6) 900 (10) 600 (11) 12. Income tax expense. Income Tax Expense 695 (12) 480 Income Tax Payable 215 480 (12) Transaction . ±inlay Interiors Inc. issued 10,000 common shares to shareholders for total cash of $10,000. Analysis . Assets increase. Shareholders’ equity increases. Double-entry . Debit the Cash asset account for $10,000. Credit the Common Shares account in shareholders’ equity for $10,000. Transaction . The board of directors of ±inlay Interiors Inc. paid a total cash dividend of $600 to the common shareholders. Analysis . Assets decrease. Shareholders’ equity decreases. Double-entry . Debit the Cash Dividends account in shareholders’ equity for $600. Credit the Cash asset account for $600. Transaction . ±inlay Interiors Inc. determined that income tax of $480 is payable regarding January’s earnings. Analysis . Shareholders’ equity decreases. Liabilities increase. Double-entry . Debit the Income Tax Expense account in shareholders’ equity for $480. Credit the Income Tax Payable liability account for $480. A 5 L 1 E ↑↑ A 5 L 1 E ↓↓ A 5 L 1 E ↑↓
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Notice that in Exhibit CS3.1 the debit and credit rules for a corporation are identical to those for a sole proprietorship (see Exhibit 3.8 on page 92 of the text- book). The only difference is in the naming and grouping of the equity accounts. For the corporation, owner investments are called shareholder investments and these are recorded in the Common Shares account under the heading Contributed Capital in the shareholders’ equity section of the balance sheet. In a sole pro- prietorship, the distribution of income to the owner is called withdrawals .A cor-
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This note was uploaded on 08/22/2009 for the course ACCT 1101 taught by Professor Davescott during the Fall '05 term at Niagara College.

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EYK3_1 - E x t e n d Yo u r K n o w l e d g e 3 - 1 :...

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