Exhibit 15-2 Lawrence, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2,000 shares of $5 par common stock for $15 a share. The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full.

-Refer to Exhibit 15-2. Lawrence received final payment (80%) on 1,800 shares and issued those shares. Subscribers defaulted on 200 shares. The entry to record the default on 200 shares would include a
A) debit to Common Stock Subscribed for $3,000
B) credit to Subscriptions Receivable: Common Stock for $3,000
C) debit to Additional Paid-in Capital on Common Stock for $2,000
D) credit to Additional Paid-in Capital from Subscribed Stock for $600

Question

Exhibit 15-2 Lawrence, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2,000 shares of $5 par common stock for $15 a share. The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full.

-Refer to Exhibit 15-2. Lawrence received final payment (80%) on 1,800 shares and issued those shares. Subscribers defaulted on 200 shares. The entry to record the default on 200 shares would include a
A) debit to Common Stock Subscribed for $3,000
B) credit to Subscriptions Receivable: Common Stock for $3,000
C) debit to Additional Paid-in Capital on Common Stock for $2,000
D) credit to Additional Paid-in Capital from Subscribed Stock for $600

Quizplus · Accepted Answer

Since the subscribers defaulted on 200 shares, the subscription contract is no longer valid for those shares, and the down payment made on those shares needs to be transferred from Subscriptions Receivable to Additional Paid-in Capital. As the down payment is for $2,000 (200 shares x $10 down payment per share), the entry to record the default would include a debit to Additional Paid-in Capital on Common Stock for $2,000 (to transfer the down payment from Subscriptions Receivable to equity) and a credit to Subscriptions Receivable: Common Stock for $2,000 (to reduce the balance of receivable for the defaulted shares). There is no need to debit Common Stock Subscribed, nor credit Additional Paid-in Capital from Subscribed Stock, as these accounts are not affected by the default of the subscribers.