Question

On December 1, 2014, Abel Corporation exchanged 40,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase bya. 400,000b. 1,600,000c. 2,200,000d. 1,800,000

Answer 1

Answer:

correct option is c. 2,200,000

Explanation:

given data

exchanged = 40,000 shares

common stock = $10

cost = $40

fair value = $55 per share

originally issued = $30 per share

to find out

total stockholders' equity will increase

solution

we will find stockholders' equity that is  increase by as given formula

Increase in total shareholder's stock equity = No. of shares × Fair value per share     ................1

put here value

Increase in total shareholder's stock equity =  40,000 × $55

Increase in total shareholder's stock equity = $2,200,000

so correct option is c. 2,200,000

Answer 2

As a result of this exchange, Abel's total stockholders' equity will increase by: c. 2,200,000.

Total stockholders' equity

Using this formula

Increase shareholder's stock equity = (Numbers of shares× Fair value per share

Let plug in the formula

Increase shareholder's stock equity=40,000 × $55

Increase shareholder's stock equity = $2,200,000

Therefore,  as a result of this exchange, Abel's total stockholders' equity will increase by: c. 2,200,000.

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