Question

Consider each situation for Kathy, Inc. below independently.

Kathy, Inc. issued 10,000 shares of its $25 par common stock (current fair value of common is $35 per share) for a large tract of land. The land was appraised at $400,000.
Kathy already had 500,000 shares of common stock outstanding.
Kathy, Inc. issued 2,000 shares of $10 par Class A common stock at $12 and 100 shares of no-par Class B common stock at $20.

Required:
a. At what amount should land be recorded?
b. What is the total amount that should be recorded for additional paid-in capital from the second situation?

Answer 1

Kathy, inc.

a. The land should be recorded initially at $250,000. This is what it caused the company to acquire it in exchange for common stock.

b. The total amount that should be recorded for additional paid-in capital from the second situation is:

= $4,000.

Step-by-step explanation:

Data and Calculations

a. Common stock issued for land = 10,000

Par value of common stock = $25

Market value of common stock = $35

Appraised value of land = $400,000

Value of land = $250,000 ($25 * 10,000)

b. Outstanding common stock = 500,000 shares

New issue of 2,000 $10 par Class A common stock at $12 = $24,000

New issue of 100 shares of no-par Class B common stock at $20 = $2,000

Total amount received = $26,000

Common stock value:

2,000 at $10 = $20,000

Additional paid-in capital = $4,000 ($24,000 - $20,000)