It might happen that a corporation wishes to reduce the capital stock held by stockholders without having it appear that capital stock has been reduced. This has been done by purchasing its stock and placing it in the treasury. Payment for the stock may be made in cash or notes, or it may be taken from surplus. The entries would be-- Treasury stock 10,000.00 Cash 10,000.00 or Treasury stock 10,000.00 Bills payable 10,000.00 or Treasury stock 10,000.00 Surplus 10,000.00 If the capital stock is to be reduced on the books, capital stock will take the place of treasury stock in these entries as-- Capital stock 10,000.00 Cash 10,000.00 EXERCISES 1. Parsons, Young, and Searles are partners and decide to form a corporation with capital stock of $40,000.00, which is to be issued as full paid stock in exchange for their present business. Each partner is to receive stock in proportion to his interest in the present business. The balance sheet of the partnership is as follows: _Assets_ Cash 3,500.00 Bills receivable 6,000.00 Accounts receivable 6,500.00 Merchandise 14,000.00 -------- Total 30,000.00 _Liabilities_ Bills payable 4,000.00 Accounts payable 2,000.00 Parsons 10,000.00 Young 8,000.00 Searles 6,000.00 -------- Total 30,000.00 Make entries on books of the partnership. Make entries on books of the corporation. [Illustration: A CORNER IN ONE OF THE SHOPS OF BROWNE & SHARPE MANUFACTURING CO., PROVIDENCE, R. I.] 2. Hoadley and Stockton are partners and desire to incorporate a company with a capital of $10,000.00 to take over their business. It being necessary to have three incorporators they agree to give Hopper, an employee, 10 shares--$1,000.00--of the stock of the new company. The stock is to be divided equally between Hoadley and Stockton after giving Hopper $1,000.00. The balance sheet of the partnership is as follows: _Assets_ Cash $960.00 Accounts receivable 1,570.00 Merchandise 720.00 -------- Total $3,250.00 _Liabilities_ Accounts payable 460.00 Bills payable 500.00 Hoadley 1,145.00 Stockton 1,145.00 -------- Total 3,250.00 Make all necessary entries on the books of the partnership. Make open entries on the books of the new company.