Reference no: EM132765816
On January 1, 20x1, Monteverde Co. contracted XYZ & Co., CPAs for an outsourced internal audit engagement. ABC Co. has its own internal audit department which performs similar services to those outsourced with XYZ. But due to lack of human resources and the immediate need of management for the internal audit services, XYZ has been contracted. On January 1, 20x1, XYZ & Co. agreed to receive 1,000 shares of ABC with par value per share of ?100 in consideration for its services as there is no restriction for equity ownership for CPAs providing internal audit services (unlike for financial audits). The audit field work ended on March 1, 20x1 but the close-out meeting was held on March 10, 20x1. All of the services required under the contract have been substantially rendered as of March 10, 20x1, with the exception of some follow-up procedures required under ISPPIA (International Standards for the Professional Practice of Internal Auditing). The fair values of the shares were ?600 on January 1, 20x1, ?600 on March 1, 20x1, and ?620 on March 10, 20x1 while the fair value of the services remained unchanged at ?600,000 over the engagement period.
Problem 1: The journal entry on March 10, 20x1 would include a
a) Debit to Professional Fees of 620,000
b) Debit to Professional Fees of 500,000
c) Credit to Share Premium of 400,000
d) Credit to Share Premium of 500,000
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