Poole Company began business on January 1,2017.The corporate charter authorized issuance of 5,000 shares of $1 par value common stock,and 4,000 shares of $8 par value,6% cumulative preferred stock.None of the preferred shares were issued.On July 1,Poole issued 1,000 shares of common stock in exchange for two years rent on a retail location.The cash rental price is $2,400 per month,and the rental period begins on July 1.The correct entry to record the July 1 transaction will

Question

Quizplus · Accepted Answer

The transaction involves the issuance of 1,000 shares of common stock in exchange for two years' rent on a retail location. The cash rental price of $2,400 per month multiplied by 24 months equals $57,600, which is the value of the prepaid rent. Therefore, the correct entry to record the transaction is to increase Prepaid Rent by $57,600, increase Common Stock by $1,000, and increase Additional Paid-In Capital-Common by $56,600. This is because the common stock was issued in exchange for the prepaid rent, and the difference between the value of the prepaid rent and the par value of the common stock is recorded as Additional Paid-In Capital-Common. Option A is incorrect because it does not reflect the issuance of common stock. Option B is incorrect because it does not reflect the issuance of common stock, and prepaid rent should be debited, not credited. Option D is incorrect because it overstates the par value of the common stock and understates the Additional Paid-In Capital-Common.

Poole Company Began Business on January 1,2017