Question

A corporation issued 5,000 shares of its $1 par value common stock in exchange for land (market value $30,000) and a building (market value of $100,000). The entry to record this transaction would be:______.

A. Debit Land and Building, $130,000; Credit Common Stock, $5,000; Credit Paid-in Capital in Excess of Par Value, Common Stock, $125,000.
B. Debit Land, $30,000; Debit Building, $100,000; Credit Common Stock, $130,000.
C. Debit Land and Building, $5,000; Credit Common Stock, $5,000.
D. Debit Land, $30,000; Debit Building, $100,000; Credit Common Stock, $5,000; Credit Paid-in Capital in Excess of Par Value, Common Stock, $125,000.
E. Debit Land, $30,000; Debit Building, $100,000; Credit Common Stock, $130,000.

Answer 1

The correct entry to record the transaction would be: Debit Land, $30,000; Debit Building, $100,000; Credit Common Stock, $130,000.

Step-by-step explanation:

The correct entry to record this transaction would be option E. Debit Land, $30,000; Debit Building, $100,000; Credit Common Stock, $130,000.

When a corporation issues shares of its common stock in exchange for assets, it records the transaction by debiting the specific asset accounts involved at their market values. In this case, land is debited for $30,000 and the building is debited for $100,000. The total amount debited for these assets is $30,000 + $100,000 = $130,000.

On the other hand, the corporation credits the common stock account for the par value of the shares issued. In this case, since the common stock has a par value of $1 and 5,000 shares were issued, the common stock is credited for $1 x 5,000 = $5,000. The total amount credited to the common stock is $5,000.

Therefore, the correct entry to record this transaction is:

Debit Land, $30,000; Debit Building, $100,000; Credit Common Stock, $130,000.

Answer 2

The correct option is A,Debit Land and Building, $130,000; Credit Common Stock, $5,000; Credit Paid-in Capital in Excess of Par Value, Common Stock, $125,000.

Step-by-step explanation:

The sum of the two market values of both land and building is $130,000($100,000+$30,000),which would be debited to land and building account to show that the asset has increased due to new acquisition.

In the common stock account the par value of the shares which is $5,000($1*5000) would be credited to it.

The difference between the market value of assets acquired and the common stock amount which is $125,000($130,000-$5,000) would be credited to paid in capital in excess of par account.