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Which of the following is the appropriate journal entry to record the cash collected from applicants for shares before the shares are actually issued? Increase cash trust account: increase share capital account Increase application account: decrease share capital account Increase share capital account: decrease cash trust account Increase cash trust account: increase application account

Question

Which of the following is the appropriate journal entry to record the cash collected from applicants for shares before the shares are actually issued? Increase cash trust account: increase share capital account Increase application account: decrease share capital account Increase share capital account: decrease cash trust account Increase cash trust account: increase application account

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Solution

The appropriate journal entry to record the cash collected from applicants for shares before the shares are actually issued is: Increase cash trust account: increase application account.

Here's why:

  1. Increase Cash Trust Account: When the company collects cash from applicants for shares, it increases the company's cash balance. This is recorded as a debit (increase) in the Cash Trust Account.

  2. Increase Application Account: The cash collected is not yet earned by the company because the shares are not issued. Therefore, it is a liability for the company. This is recorded as a credit (increase) in the Application Account.

So, the journal entry would be:

Debit (Increase) Cash Trust Account Credit (Increase) Application Account

This entry will be reversed when the shares are actually issued.

This problem has been solved

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