Question

In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred:

Cash and receivables 23,000
Inventory 15,000
Land 30,000
Buildings 100,000
Equipment 95,000
Accounts Payable 20,000
Accum Depr—Buildings 32,000
Accum Depr—Equip 30,000
Common Stock 56,000
Additional Paid-In Capital 125,000

Based on the preceding information, what number of shares of $7 par value stock did Spin issue to Conservative?
A) 10,000
B) 7,000
C) 8,000
D) 25,000

Answer 1

By dividing the value of Common Stock by the par value per share, we find that Spin Company issued 8,000 shares of $7 par value stock to Conservative Corporation. The correct answer is option (C).

Step-by-step explanation:

The question asked is in the area of business and finance, specifically regarding the number of shares of par value stock issued by Spin Company to Conservative Corporation.

To calculate this, we will use the accounting ledger entries provided. Based on the ledger, Spin recorded a Common Stock value at $56,000 and Additional Paid-In Capital at $125,000. Since this is $7 par value stock, we divide the total value of common stock by the par value to find the number of shares.

To find the number of shares issued, use the formula:

Number of shares = Common Stock value ÷ Par value per share

Number of shares = $56,000 ÷ $7 per share

Number of shares = 8,000

Therefore, the correct answer is C) 8,000 shares of $7 par value stock.