Badger Corporation issued 5000 shares of its $5 par value common stock in payment for attorney services billed at $40,000.Badger Corporation's stock has been actively trading at $8 per share.The journal entry for this transaction would include a:

Question

Quizplus · Accepted Answer

CThe correct journal entry for this transaction would include a debit to Legal Expense for the fair value of the services received, which is $40,000 (B), and a credit to Common Stock for the par value of the shares issued, which is 5000 shares * $5 par value = $25,000. However, since the total value of the transaction is $40,000 and the par value of the stock issued is $25,000, the difference of $15,000 is credited to Paid-in Capital in Excess of Par-Common. Therefore, option C is partially correct in indicating a credit related to Common Stock, but the amount should be $25,000, not $15,000. The correct credit to Paid-in Capital in Excess of Par-Common is not listed as an option, making B and C the best available choices given the options provided.

Badger Corporation Issued 5000 Shares of Its $5 Par Value