A corporation issued 290 shares of its $5 par value common stock in payment of a $3,700 charge from its accountant for assistance in filing its charter with the state. The entry to record this transaction will include: Multiple Choice A $3,700 credit to Common Stock. A $3,700 debit to Legal Expenses. A $1,450 debit to Organization Expenses. A $2,250 credit to Paid-in Capital in Excess of Par Value, Common Stock. A $3,700 credit to Cash.

Question

Business

Marilyn Weber

11 September, 07:11

A corporation issued 290 shares of its $5 par value common stock in payment of a $3,700 charge from its accountant for assistance in filing its charter with the state. The entry to record this transaction will include: Multiple Choice A $3,700 credit to Common Stock. A $3,700 debit to Legal Expenses. A $1,450 debit to Organization Expenses. A $2,250 credit to Paid-in Capital in Excess of Par Value, Common Stock. A $3,700 credit to Cash.

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Justice Benjamin · Answer 1

A $2,250 credit to Paid-in Capital in Excess of Par Value, Common Stock.

Explanation:

The journal entry to record the issuing of stocks is:

Dr Organization expenses 3,700

Cr Common stock 1,450

Cr Additional paid in capital 2,250

Legal and accounting fees related to starting a business (e. g. obtaining a state charter) are considered organization costs or expenses. Therefore, the accountant's fees must be recorded under organization expenses.

Stocks are always recorded at face value, and any money obtained over face value must be recorded under additional paid in capital.