Question

Sudoku Company issues 7,000 shares of $7 par value common stock in exchange for land and a building. The land is valued at $45,000 and the building at $85,000. Prepare the journal entry to record issuance of the stock in exchange for the land and building.

Answer 1

Answer:

The journal entry to record this exchange is :

Land  $45,000 (debit)

Buildings $85,000 (debit)

Common Stocks $49,000 (credit)

Share Premium $81,000 (credit)

Explanation:

The price of Common Stock is equivalent to the price required to settle the Market Cost of Land and Buildings.

Also note that the Common Stocks have a par vale of $7, this means that any amount paid in excess of the par value is accounted in the Share Premium Reserve.

The journal entry to record this exchange is :

Land  $45,000 (debit)

Buildings $85,000 (debit)

Common Stocks $49,000 (credit)

Share Premium $81,000 (credit)

Answer 2

• The journal entry for recording the issuance of the stock for exchange for the land and building:

Land $45,000  

Building $85,000  

          To Common stock $49,000 (7,000 shares × $7)

          To Premium on issue of common stock  81,000

(Being recording of the  issuance of the stock in exchange for the land and building)

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