CORPORATION ACCOUNTING
Delinquent Subscription
When a subscriber fails to pay his subscription on the call date, the
corporation sends several notices to remind him of his obligation. If
these notices are ignored by the subscriber, his subscription is
declared delinquent. The delinquent subscription is offered for sale in
a public auction.
1. The sale of the delinquent subscription is issued to the highest
bidder.
2. The highest bidder is the one who is willing to pay the unpaid
balance of the subscription plus accrued interest plus all
expenses related to the sale and is willing to receive the
smallest number of shares.
3. Once the subscription is fully paid, all subscribed shares are
issued. Shares are first given to the highest bidder. The excess
shares are given to the defaulting subscriber.
4. If there is no bidder, all of the delinquent shares will be issued in
the name of the corporation. Such shares are considered
treasury shares. The defaulting subscriber does not get any
share of stock.
Pro-forma Entries – Short Method
Subscription
Partial collection
Subscriptions receivable
Subscribed share capital
xxx
Cash
Subscriptions receivable
xxx
xxx
xxx
Subscriber defaults No entry
and corporation
declares the
subscription
as delinquent
Costs incurred
in connection
with delinquency
Receivable from highest bidder
Cash
1
xxx
xxx
sale
Highest bidder
pays
Cash
Receivable from highest bidder
Subscriptions receivable
xxx
Stock certificates
are issued
Subscribed share capital
Share capital
xxx
xxx
xxx
xxx
OR
If there is no
bidder
Treasury shares
Receivable from highest bidder
Subscriptions receivable
xxx
Subscribed share capital
Share capital
xxx
xxx
xxx
xxx
Classroom Exercise
Journalize the following transactions:
1. Mr. A subscribed 1,000 shares of X Corporation common shares
with a par value of P10.
2. Mr. A paid P6,000 cash as partial payment.
3. The corporation declared the above subscription as delinquent.
4. Incurred advertising costs of P300.
5. Bidders in the public auction were as follows:
Mr. R – 450 shares
Mr. S – 455 shares
Mr. T – 445 shares
The highest bidder paid the balance of the subscription plus
advertising costs.
6. Stock certificates were issued.
July 2014
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