Asked by Feryal Rushdan on May 17, 2024
Verified
Sunshine Company issued 4000 shares of its $5 par value common stock in payment of its attorney's bill of $80000. The bill was for services performed in helping the company incorporate. Crain should record this transaction by debiting
A) Legal Expense for $20000.
B) Legal Expense for $80000.
C) Organization Expense for $20000.
D) Organization Expense for $80000.
Par Value
The nominal or face value of a bond, share, or coupon as stated by the issuer, often used in the context of bonds and stock.
Legal Expense
Costs incurred by a business related to legal services such as attorney fees, settlements, and court costs, often recognized as part of operating expenses.
Organization Expense
Organization expense comprises the costs related to forming a business entity, such as legal fees, registration fees, and initial administrative expenses.
- Recognize the representation of financial statements and the effects of stock transactions, covering underwriting and costs related to organization.
Verified Answer
LA
Layken AlberMay 20, 2024
Final Answer :
D
Explanation :
When a company incurs expenses related to organizing, such as legal fees for incorporating, those expenses are classified as organization expenses. Therefore, the transaction should be recorded by debiting Organization Expense for $80,000.
Learning Objectives
- Recognize the representation of financial statements and the effects of stock transactions, covering underwriting and costs related to organization.