Question

A 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 300 sharesto its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include _________.

Answer 1

Answer:

The entry to record the payment of attorneys fees by a way of share issue will be:

Dr  Organization expense      $5000

Cr  Share capital                                     $3000

Cr  Share premium                                 $2000

Explanation:

Firstly, the fees payable to the attorneys is $5000,hence organization expense is debited with $5000.

However, the value of the shares given is 300*$10 i.e $3000,as a result, the attorneys have indirectly paid $2000 more for the shares, the excess is recorded in paid in share capital in excess of par value account or a share premium account.

The rationale for the entries is that expense account takes debit when it increases and capital account a credit.