issued 20,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $55,000, $120,000 and $45,000. how are these entries journalized
To journalize the entries for the issuance of 20,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $55,000, $120,000, and $45,000 respectively, you need to record two separate entries.
First, you need to record the issuance of the common stock. Here's how you journalize it:
1. Debit: Land ($55,000)
Debit: Buildings ($120,000)
Debit: Equipment ($45,000)
Credit: Common Stock ($220,000)
Explanation: You increase the asset accounts (Land, Buildings, and Equipment) with their respective fair market values. At the same time, you credit the Common Stock account for the total value of the issued shares.
Next, you need to record the additional paid-in capital if the common stock's par value is less than the fair market value. Assuming the common stock has a par value of $2 per share, and the fair market value per share is $11 ($220,000 total value divided by 20,000 shares), the additional paid-in capital can be calculated as follows:
Additional Paid-in Capital = (Fair Market Value - Par Value) x Number of Shares
= ($11 - $2) x 20,000
= $9 x 20,000
= $180,000
2. Debit: Additional Paid-in Capital ($180,000)
Credit: Common Stock ($180,000)
Explanation: You increase the Additional Paid-in Capital account by the calculated amount ($180,000), and simultaneously decrease the Common Stock account by the same amount to balance the entry.
So, these are the two journal entries you would make to record the issuance of 20,000 shares of common stock in exchange for land, buildings, and equipment.