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

Answer:

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.

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.