Question

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.

Answer 1

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

Step-by-step explanation:

The share are issued on the premium or discounted value. If the issuance rate per share is above the par value then the shares are issued on premium or excess of par value. If the issuance rate per share is below the par value then the shares are issued on discounted value.

In this question the common shares are issued on a excess of par value. The value up to the par is recorded in the common stock account and excess over par value will be recorded in Paid-in Capital in Excess of Par account.

Issuance rate = Total Receipt / Numbers of shares = $3,700 / 290 = 12.76

Par value = 290 shares x $5 per share = $1,450

Excess of par value = $3,700 - $1,450 = $2,250

Journal Entry will be

Dr. Cash $3,700

Cr. Common stock $1,450

Cr. Paid-in Capital in Excess of Par $2,250

Answer 2

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

Step-by-step 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.