Question

A corporation issued 200 shares of its $5 par value common stock in payment of a $2,800 charge from its accountant for assistance in filing its charter with the state. The entry to record this transaction will include:

Answer 1

The journal entry records the transaction by debiting the corporate expense by $2,800 and crediting the common stock by $1,000 with the remaining amount transferred to additional capital as $1,800.

What is a journal entry?

Journal entry is passed in the accounting books to record the financial transactions made by a company. It shows a dual effect on every transaction where one account is debited and another account is credited.

The charge from the accountant is an expense for the company, that is, $2,800, the issue of common stock for payment is the equity of the company, that is, $1,000 and the excess amount left should be treated as additional capital in excess of par, that is, $1,800.

The journal entry is as follows:

Particulars                                       Debit Amount    Credit Amount

Corporate expenses                                 $2,800

   Common stock (200 shares X $5 )                                   $1,000

   Additional capital ($2,800-$1,000)                                    $1,800

Therefore, the journal entry is passed by making a debit of $2,800 to corporate expenses and a credit of $1,000 in common stock as well as $1,000 in additional capital.

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