Question

Fox Co. issued 1,000 shares of its $15 par common stock to Owl Co. in exchange for equipment with an original cost of $300,000 and accumulated depreciation of $125,000. On the date of issuance, the stock was trading on a public exchange at $160 per share. By what amount should Fox's additional paid-in capital account increase as a result of this transaction?

Answer 1

Answer:

The amount of $145,000 will be the additional paid-in capital account increase as a result of this transaction

Explanation:

The journal entry which is to be recorded on issuing the stock will be as:

Equipment A/c.............................Dr    $160,000

     Common Stock A/c....................Cr    $15,000

     Paid in Capital A/c.......................Cr    $145,000

Working Note:

Equipment = Number of shares × Price per share (Stock trading price)

= 1,000 × $160

= $160,000

Common Stock (At Par) = Number of shares × Price par common stock

= 1,000 × $15

= $15,000

Paid in capital A/c = Equipment - Common Stock

= $160,000 - $15,000

= $145,000

Note: Neither the book value nor its original historical equipment cost is the appropriate basis for the market valuation.