Barb Inc issued 500 common shares in payment of a $1,900 bill from its accountant for assistance in filing its charter. The entry to record this transaction will includeMultiple ChoiceA $1,900 debit to Common SharesA $1,900 debit to Accounting ExpenseA $1,900 credit to Common SharesA $1,900 credit to Organization CostsA $1,900 debit to Legal Expense
Question
Barb Inc issued 500 common shares in payment of a 1,900 debit to Common SharesA 1,900 credit to Common SharesA 1,900 debit to Legal Expense
Solution
The correct answer is: A $1,900 debit to Accounting Expense.
Here's the step-by-step reasoning:
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Barb Inc. is paying a bill to its accountant. This is an expense for the company, so it needs to be recorded as a debit to an expense account.
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The bill is for assistance in filing its charter, which is an accounting service. Therefore, the expense should be recorded in the Accounting Expense account.
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The payment is made by issuing common shares, not cash. Therefore, the credit side of the entry should be to the Common Shares account, reflecting an increase in equity.
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The amount of the transaction is 1,900.
So, the journal entry to record this transaction would be:
- Debit Accounting Expense $1,900
- Credit Common Shares $1,900
This reflects the fact that the company has incurred an expense and paid for it by issuing equity, rather than cash.
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