A corporation issued 300 shares of its $5 par value common stock in payment of a $1,800 charge from its accountant for assistance in filing its charter with the state.The entry to record this transaction will include:
A)A $1,800 credit to Common Stock.
B)A $1,500 debit to Organization Expenses.
C)A $300 credit to Contributed Capital in Excess of Par Value,Common Stock.
D)A $1,800 debit to Legal Expenses.
E)A $1,800 credit to Cash.

Question

Quizplus · Accepted Answer

When a corporation issues stock in exchange for non-cash assets, the transaction is recorded at the fair market value of the stock or the fair market value of the assets received, whichever is more clearly determinable. In this case, the charge from the accountant is clearly determinable at $1,800, and the par value of the stock issued is $5 per share, for a total par value of $1,500 (300 shares x $5). Therefore, the entry to record this transaction will include a debit to Organization Expenses for $1,500 (the difference between the fair market value of the services received $1,800 and the par value of the stock issued $1,500) and a credit to Contributed Capital in Excess of Par Value, Common Stock for $300 (the remaining amount above the par value of the stock issued).

A Corporation Issued 300 Shares of Its $5 Par Value