Question

^{Instructions Journalize the transactions. E13.6 (LO 2) As an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients. Journalize noncash common stock transactions. 1. LR Corporation is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,000 shares of its $20 par value common stock. The owners' asking price for the land was $120,000, and the fair value of the land was $110,000. 2. Vera Corporation is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 20,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $250,000. The stock was selling at $11 per share.}

Answer 1

Answer:

Journal Entries:

Transactions	Account title and Explanation	Debit	Credit
1	Land	$110,000
	Common stock [5,000 x $20 par]		$100,000
	Paid-in capital in excess of par-common		$10,000
	[To record acquisition of land in exchange of common stock]
2	Land [20,000 x $11]	$220,000
	Common stock [20,000 x $10]		$200,000
	Paid-in capital in excess of par-common		$20,000
	[To record acquisition of land in exchange of common stock]

Explanations:

Share issuance are recorded at the fair market value of the shares or the non-cash assets/services which ever can be determined more reliably.

In the first transaction, Stock is not publicly traded. So that fair value of the land is more reliable. Hence, fair value of the land is acquisition cost.

In the second transaction. Stock is publicly traded. So that market value of the stock price is more reliable. Hence, market value of the stock price of 20,000 shares is an acquisition cost.