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Chapter 12: Q15E (page 643)

Question: (Accounting for Organization Costs) Angelou Corporation was organized in 2016 and began operations at the beginning of 2017. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations.

Attorney fees in connection with organization of the company

\(15,000

Purchase of drafting and design equipment

10,000

Costs of meetings of incorporators to discuss organizational activities

7,000

State filing fees to incorporate

1,000

\)33,000

Instructions

  1. Compute the total amount of organization costs incurred by Angelou.
  2. Prepare the journal entry to record organization costs for 2017.

Short Answer

Expert verified

Answer

  1. Total organization cost = $23,000
  2. Organization cost account should be debited, and the cash account should be credited.

Step by step solution

01

Meaning of Organization costs 

Organizational expenses are those expenses that are associated with the setup of a firm. The cost of a survey linked with an evaluation of possible markets, educating personnel in their new roles, and legal expenditures to form bylaws and articles of incorporation are some transactions that are included in organizational costs (for a corporation).

02

(a) Computation of the total amount of organization costs incurred by Angelou

Attorney’s fees in connection with the organization of the company

$15,000

Costs of meetings of incorporators to discuss organizational activities

7,000

State filing fees to incorporate

1,000

Total organization costs

$23,000

Drafting and design equipment, $10,000, should be classified as part of fixed assets rather than as organization costs.

03

(b) Preparing journal entries to record organization costs for 2017.

Date

Particular

Debit ($)

Credit ($)

Organization Expense

23,000

Cash (Payables)

23,000

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