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Percy 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 280 shares to its attorneys in payment of a $4,800 charge for drawing up the articles of incorporation. The entry to record this transaction would include:1. A debit to Organization Expenses for $4,800.2. A debit to Organization Expenses for $2,800.3. A credit to Common Stock for $4,800.4. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $4,800.5. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.

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Answer:

1) A debit to Organization Expenses for $4,800.

Explanation:

The complete journal entry should be as follows:

January xxx, Year 1 (organization expenses)

  • Dr Organization Expenses account 4,800
  • Cr Common Stock account 2,800
  • Cr Paid-in Capital in Excess of Par Value account 2,000

All the stock sold by the corporation must be recorded at par value in the common stock account. Any money received in excess has to be recorded under paid-in capital in excess of par value account.

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