On January 1, 2014, DDB agreed to purchase 4,000 of CTC's common shares at $5 per share.Cash payment in full, including 10% interest, is to be paid one year later at which time the shares will be issued.The appropriate journal entry for CTC to record the transaction on January 1, 2014, would include a:

Question

Quizplus · Accepted Answer

DThe correct answers are A) Credit to Common Shares Subscribed for $20,000 and D) Debit to Subscriptions Receivable for $18,000. This is because the agreement is to purchase shares at a future date, so the company records a subscription receivable for the present value of the agreed price (without including the interest), and credits common shares subscribed to indicate the future issuance of shares. The interest component is not included in the initial journal entry for the subscription.

On January 1, 2014, DDB Agreed to Purchase 4,000 of CTC's