Question

Sage Hill obtained equipment in exchange for 2000 of its common shares. As of the exchange date, Sage Hill’s common shares were trading on the market for $40 per share, and the retail purchase price of the equipment was $90,000. Journal Entry

Answer 1

The journal entry for Sage Hill’s acquisition of equipment in exchange for common shares is a debit to Equipment and a credit to Common Stock at the market value of the shares issued, which in this case is $80,000.

Step-by-step explanation:

The student's question involves recording a journal entry for a transaction where Sage Hill obtains equipment in exchange for issuing common shares. In this scenario, Sage Hill is exchanging 2000 shares of their common stock, valued at $40 per share, for equipment that has a retail purchase price of $90,000. To record this transaction, you would make the following journal entry:

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• Debit Equipment $80,000
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• Credit Common Stock (2000 shares × $40 per share) $80,000

It should be noted that the retail purchase price of the equipment is not used in this journal entry, as the market value of the shares is a more reliable measure of the equipment's value on the date of the transaction.