Question

Assume that 2,000 shares of common stock with a par value of $12 and a market price of $16 per share are issued in exchange for land with a fair market value of $32,000.
a. Prepare the journal entry to record the transaction.
b. If the land's appraised fair market value were $33,000, what would be the correct entry to record
the transaction?
c. Prepare the necessary journal entry, assuming the same facts as in (b), except that the stock is not actively traded and therefore its market price is unknown.
d. Prepare the necessary journal entry, assuming the stock has a par value of $10 and a market price of $15 per share.

Answer 1

Land Journal Enteries Trans. Particulars Debit in $ Credit in $ a. Land a/c Dr. 32000 To Common Stock 24000 To Paid-In Capital in Excess of Par Value, Common Stock 8000 (Common stock issued for Land) 12 x 2000 = 24000 b.Same entry as in (a); the land would be valued at the fair market value of the stock given up, which is $32,000. 32000 Land a/c Dr. To Common Stock To Paid-In Capital in Excess of Par Value, Common Stock (Common stock issued for Land) 12 x 2000 = 24000 24000 8000 c. 33000 Land Common Stock Paid-In Capital in Excess of Par Value, Common Stock (Common stock issued for Land) 12 x 2000 = 24000 24000 9000 d. 30000 Land Common Stock Paid-In Capital in Excess of Par Value, Common Stock (Common stock issued for Land) 10 x 2000 = 20000 20000 10000