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Mena Company was established on January 1, The corporate charter authorized 1,000,000 shares of S10 par value common stock
Mena Company was established on January 1, The corporate charter authorized 1,000,000 shares of S10 par value common stock. During the first month of opration the corporation issued 600 shares to its attorneys in payment of a $8.000 charge for drawing up the articles of Incorporation. The entry to record this transaction would include: A. A credit to Common Stock for $8.000 B. A debit to Pald-in Capital in Excess of Par Value. Common Stock for $2,000. CA debit to Organization Expenses for 56,000. D. A credit to Pald in Capital in Excess of Par Value, Common Stock for $2.000
Expert Solution
We assume the services provided by the attorney as "Legal Services Expense" account.
The company must recognise the actual value of legal services and debit Legal Services Expense account by $8,000.
The stock issued should be increased by the par value of stock issued i.e. 600 shares x $10 which is equal to $6,000 i.e credit common stock account
The excess value of legal services over the par value of stock ($8,000 - $6,000 = $2,000) should appear as increase to Additional Paid-in Capital from Common Stock account i.e. credit Additional Paid-in Capital from Common Stock account.
Option A is wrong since the stock issued are only for $6,000.
Option B is wrong since amount for legal services is in excess to stock issued which should be credite.
Option C is wrong since organisation expenses (termed as Legal services expense) is settled in full i.e. $8,000.
please see the attached file for the complete solution.
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