Question

On December 1, Miser Corporation exchanged 6,000 shares of its $25 par value common stock held in treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by Miser at a cost of $40 per share, and on the exchange date the common share of Miser had a fair value of $50 per share. Miser received $18,000 for selling scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at what amount?

Answer 1

Answer:

Capitalized value $582.000.

Explanation:

Step 1. Given information.

• The common share of Miser had a fair value of $50 per share.

Step 2. Formulas needed to solve the exercise.

• Fair value of shares = Price per share * (Amount by selling scrap -        exchanged shares)
• Capitalized value = fair value of shares - value of scrap.

Step 3. Calculation.

Fair value of shares = $50 * (18.000 - 6.000) = $600.000

Land should be capitalized by fair market value of share exchanged less any recovery of scrap as land will be developed for future plant.  

Step 4. Solution.

Fair value of shares = $50*12.000 = $600.000  

Less: value of scrap = $18.000  .

Capitalized value = $600.000   - $18.000 = $582.000.