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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Issuance of Stock for Land Putt Company issues 500 shares of $100 preferred stock to Drive Corporation in exchange for land. This land was carried on Drive’s books for $40,000.

Required:

  1. 1. Prepare the journal entry to record the acquisition of the land for each of the following independent situations:
    1. a. The preferred stock is currently selling for $120 per share. No appraisal is available on the land.
    2. b. The land is appraised at $65,000. There have been no recent sales of the preferred stock.
    3. c. The preferred stock is currently selling for $125 per share. The land is appraised at $64,000.
  2. 2. Next Level For Requirement 1(c), discuss why you chose the value used in the journal entry.

1 (a)

To determine

Prepare the journal entry to record the given transaction.

Explanation

Preferred stock: Preferred stock is the cash raised by the company by issuing preferred shares. This investment fetches a preferential right for dividend for the preferred stockholders over the common stockholders.

Issue of preferred stock for non-cash assets or services: Corporations often issue preferred stock for the purchase of non-cash assets such as land, buildings, or equipment.

Prepare the journal entry to record the given transaction:

DateAccounts title and ExplanationPost ref.Debit ($)Credit ($)
aLand ($120×500shares) 

1 (b)

To determine

Prepare the journal entry to record the given transaction.

1 (c)

To determine

Prepare the journal entry to record the given transaction.

2.

To determine

Discuss the reason for using the values in sub-part 1 (c).

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