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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 5E
Textbook Problem
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Issuing stock for assets other than cash

On April 5, Fenning Corporation, a wholesaler of hydraulic lifts, acquired land in exchange for 30,000 shares of $80 par common stock valued at $112 per share. Journalize the entry to record the transaction.

To determine

Journalize the issuance of the stock in acquiring the land.

Explanation of Solution

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 ($)Credit ($)
April 5Land (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)

  • Land is an asset account. Land is increased, because land is received upon stock issued. 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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Chapter 13 Solutions

Financial Accounting
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