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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Issuing stock for assets other than cash

On April 5, Penning Corporation, a wholesaler of hydraulic lifts, acquired land in exchange for 50,000 shares of $80 par common stock valued at $112 per share. Journalize the entry to record the transaction.

To determine

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.

To Journalize: The issuance of the stock in acquiring the land.

Explanation

Journalize the issuance of the stock in acquiring the land.

Date Account Titles and Explanation Debit ($) Credit ($)
April 5 Land (1) 3,360,000
      Common Stock (2) 2,400,000

      Paid-in Capital in Excess of Par value –

      Common stock (3)

960,000
(To record issuance of 30,000 shares for land)

Table (1)

Working note:

Compute the cost of the land.

Cost of the land = [Acquired land in exchange of30,000 shares ×Value per share]=30,000 shares ×$112=$3,360,000 (1)

Compute common stock value.

Common stock value} = Number of shares × Par value of common stock= 30,000 shares × $80= $2,400,000 (2)

Compute paid-in capital in excess of par value

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