Question

H. Tillman performed legal services for J. Laney. Due to a cash shortage, an agreement was reached whereby J. Laney. would pay H. Tillman a legal fee of approximately $12500 by issuing 2900 shares of its common stock (par $1). The stock trades on a daily basis and the market price of the stock on the day the debt was settled is $4.80 per share. Given this information, the journal entry for J. Laney. to record this transaction is:

Answer 1

Answer:

The journal entry for J. Laney. to record this transaction is:

Legal Expenses $13,920 (debit)

Common Stock $2,900 (credit)

Share Premium $11,020 (credit)

Explanation:

The Common Stocks are carried at par value of $1. This means that any price paid in excess of the par value is accounted for in the Share Premium Account.

The Common stocks issued are measured at the price required to settle the legal expenses and are paid in excess of par value of $1.

Share Premium = ($4.80 - $1.00) × 2900 shares

                          = $3.80 × 2,900

                          = $11,020