Question

Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to __________ in the amount of __________.
a. Cash; $10,000
b. Paid-in Capital, in Excess of Par; $10,000
c. Common Stock; $10,000
d. Paid-in Capital, in Excess of Par; $8,000

Answer 1

Answer:

Correct option is (d)

Explanation:

Owners contribute to capital in cash or kind in exchange for shares. Sometimes, owners contribute land or building to the organization in exchange for shares. Here, Jose Garcia contributes land worth $10,000 in exchange for 200 shares at $10 per share. Value of shares is $2,000 (200×10)

Journal entry to record the same:

Particulars                       Debit                 Credit

Land                                  $10,000

      Common stock                                    $2,000

       Paid in capital in excess                     $8,000

      of par value

(To record land received in exchange

for shares)

Paid in capital in excess of par value of shares is credited which is $8,000 ($10,000 - $2,000).