Percy Corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 400 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include:

Question

Quizplus · Accepted Answer

The issuance of common stock for non-cash considerations such as services received in organizing the corporation should be recorded by debiting Organization Expenses for the fair value of the services received, which is the $5,000 charge for drawing up the articles of incorporation. Therefore, choice A is the best answer. Choice B is incorrect because this account represents the difference between the proceeds received from the issuance of the stock and the par value of the stock. However, no proceeds were received in this transaction. Choice C is incorrect because this account represents the amount paid in excess of par value when the stock is issued for cash at a price above par. Choice D is incorrect because it underestimates the value of the services received. Choice E is incorrect because it only records the par value of the stock issued, which is not the appropriate amount to be recorded in this transaction.

Percy Corporation Was Formed on January 1