Which of the following journal entries is correct for Smith Company when Smith issues 10,000 shares of $20 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $200,000.
A) $\begin{array} { l r }
\text { Building } & 220,000 \
\quad \text { Cash } && 20,000 \
\quad \text { Common stock } && 200,000
\end{array}$
B) $\begin{array} { l r }
\text { Building } & 370,000 \
\quad \text { Cash } && 20,000 \
\text { Common Stock } & &350,000
\end{array}$
C) $\begin{array} { l r }
\text { Building } & 370,000 \
\text { Cash } & 20,000 \
\text { Common stock } & 200,000 \
\text { Additional paid-in capital } & 150,000
\end{array}$
D) $\begin{array} { l l }
\text { Building } & 200,000 \
\quad\quad\text { Common stock } &\quad\quad\quad 200,000
\end{array}$

Question

Which of the following journal entries is correct for Smith Company when Smith issues 10,000 shares of $20 par value common stock and pays $20,000 cash in exchange for a building? The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $200,000.
A) $\begin{array} { l r } 
\text { Building } & 220,000 \
\quad \text { Cash } && 20,000 \
\quad \text { Common stock } && 200,000
\end{array}$
B) $\begin{array} { l r } 
\text { Building } & 370,000 \
\quad \text { Cash } && 20,000 \
\text { Common Stock } & &350,000
\end{array}$
C) $\begin{array} { l r } 
\text { Building } & 370,000 \
\text { Cash } & 20,000 \
\text { Common stock } & 200,000 \
\text { Additional paid-in capital } & 150,000
\end{array}$
D) $\begin{array} { l l } 
\text { Building } & 200,000 \
\quad\quad\text { Common stock } &\quad\quad\quad 200,000
\end{array}$

Quizplus · Accepted Answer

The building is recorded at the fair value of the consideration given, which is the market value of the stock ($35 x 10,000 shares = $350,000) plus cash ($20,000), totaling $370,000. The common stock is recorded at par value ($20 x 10,000 shares = $200,000), and the excess is recorded as additional paid-in capital ($150,000).