Renwood, Inc. contracted for services to be provided over a period of time in return for 2,000 shares of Renwood's $5 par common stock when the service is completed. At the time, Renwood stock was selling for $10 per share. When the service was completed, Renwood's stock price was $12 per share. Therefore, Renwood
A. Recognizes $24,000 of expense.
B. Increases the common stock account $12,000.
C. Increases contributed capital in excess of par $10,000.
D. Credits a liability for $20,000.

A. Recognizes $24,000 of expense.

Explanation:

The fees expense will be equivalent to the market value of the common stock.

The company will issue 2,000 shares which market price is $12 per share

2,000 x $12 = 24,000 total cost for the services.

Which will be pposted for common stock and additional paid-in common stock

fees expense 24,000 debit

    common stock           10,000 credit (5,000 x 2)

    additional paid-in CS 14,000 credit

C) Increases contributed capital in excess of par $10,000.

Explanation:

Since Renwood is exchanging common stock for performed services, it must increase equity by $20,000 which records the stock price when the contract was signed. The contract included 2,000 stocks at $10 per stock = $20,000

Whenever a stock is issued and the firm obtains more money than par value, it must record the common stock at par value and recognize the difference in the additional paid-in capital to par value account. The journal entry to record this transaction should be:

Dr Services expense 20,000

    Cr Common stock 10,000

    Cr Additional paid-in capital of par value 10,000

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