Asked by Cameron Hutton on May 17, 2024
Verified
Jackson Company is a publicly held corporation whose $1 par value stock is actively traded at $64 per share. The company issued 3000 shares of stock to acquire land recently advertised at $200000. When recording this transaction Barton Company will
A) debit Land for $200000.
B) credit Common Stock for $192000.
C) debit Land for $192000.
D) credit Paid-In Capital in Excess of Par for $196000.
Par Value
A nominal or face value assigned to a share of stock by the company's charter, unrelated to the market value.
Paid-In Capital
The amount of money that a company has received from shareholders in exchange for stock, exceeding the par value of the shares.
Common Stock
A type of equity security that represents ownership in a corporation and entitles holders to vote on corporate matters and receive dividends.
- Understand the conceptual basis for recording equity transactions and the impact on a company's financial statements.
- Calculate and record transactions related to the issuance of stock for cash, assets (other than cash), and services.
Verified Answer
CH
Colin HowellMay 22, 2024
Final Answer :
C
Explanation :
When a company issues stock for non-cash assets such as land, the transaction records the asset acquired, not the price advertised. Therefore, Jackson Company will debit Land for $200,000, and credit Common Stock for the fair market value of the stock issued, which is 3000 x $64 = $192,000. The difference between the Land value and the Common Stock value is recorded as a debit or credit to Additional Paid-In Capital, but none of the choices in the question reflect this option. Choice C is the correct answer because it correctly records the asset acquired.
Learning Objectives
- Understand the conceptual basis for recording equity transactions and the impact on a company's financial statements.
- Calculate and record transactions related to the issuance of stock for cash, assets (other than cash), and services.