Question

Kansas Company acquired a building valued at $166,000 for property tax purposes in exchange for 10,000 shares of its $4 par common stock. The stock is widely traded and sold for $20 per share. At what amount should the building be recorded by Kansas Company?

Answer 1

Answer:

$200,000

Explanation:

Asset is recorded in the books on a value of the consideration paid at the time to acquire the asset. In this question the building is purchased by issuing $200,000 (10,000 shares x $20) value of shares.So, the building should be recorded at a value of $200,000 in the books.

The Journal Entry for the transaction is as follow:

Dr.  Building                                                                         $200,000

Cr.  Common Stock (10,000 x $4)                                      $40,000

Cr.  Add-in-Capital common stock ($200,000-$40,000) $160,000