Question

On January 15, Pinkney, Inc., issued 10,000 shares of $10 par value common stock in exchange for land and a building. Five years ago, the stockholder purchased the land for $40,000 and constructed the building at a cost of $90,000. At the time of the stock issuance, the land and the building had fair market values of $45,000 and $95,000, respectively. Prepare the journal entries.

Answer 1

Answer:

Jan 15   Land          $45,000 Dr

             Building    $95,000 Dr

                  Common Stock at par       $100,000 Cr

                  Paid in Capital in Excess

                  of Par, Common Stock       $40,000 Cr

Explanation:

The assets are recognized by a company at the market value on the day of transaction. The market value of land and building was $140,000 (45000 + 95000). Thus, the stock issued against these assets was issued at $14 per share ($140000/10000) and a premium of $4 / share was received.

The Land is debited by $45000 and building by $95000 while we credit the common stock at par value $100000 and credit the premium $40000.