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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
ISBN: 9781337902663

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BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
ISBN: 9781337902663
Textbook Problem

Issuing stock for assets other than cash

On November 23, Elder Lift Corporation, a wholesaler of hydraulic lifts, acquired land in exchange for 14,200 shares of $25 par common stock with a current market price of $34. Journalize the entry to record the transaction.

To determine

Journalize the issuance of the stock in acquiring the land.

Explanation

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.

Par value: It refers to the value of a stock that is stated by the corporation’s charter. It is also known as face value of a stock.

Issue of common stock for non-cash assets or services: Corporations often issue common stock for the services received from attorneys or consultants as compensation, or for the purchase of non-cash assets such as land, buildings, or equipment.

Journalize the issuance of the stock in acquiring the land.

DateAccount Titles and ExplanationDebit ($)Credit ($)
November 23Land (1)482,800
       Common Stock (2)355,000

      Paid-in Capital in Excess of Par value –

      Common stock (3)

127,800
(To record issuance of 14,200 shares for land)

Table (1)

  • Land is an asset account. Land is increased, because land is received upon stock exchange. Therefore, debit Land account with the value of land purchased.
  • Common Stock is a stockholders’ equity account and the amount is increased due to issuance of common stock. Therefore, credit Common Stock account with the value of common stock.
  • Paid-in Capital in Excess of Par Value is a stockholders’ equity account and the amount is increased due to increase in capital. Therefore, credit Paid-in Capital in Excess of Par Value account with the amount value of land in excess of common stock value.

Working note (1):

Compute the cost of the land...

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