Garden Company began business on January 1,2012.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,Garden 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 issuing 1,000 shares of common stock in exchange for prepaid rent. The value of the rent is two years at $2,400 per month, which is $57,600. Garden receives an asset, prepaid rent, and issues equity, common stock. Therefore, the correct entry would be to increase Prepaid Rent by $57,600, increase Common Stock by $1,000, and increase Additional Paid-in Capital - Common by $56,600. Option A is incorrect because it only records the increase in cash without accounting for the prepaid rent asset. Option B is incorrect because it does not account for the issuance of common stock. Option D is incorrect because it records an unnecessary increase in Common Stock.

Garden Company Began Business on January 1,2012