Richard Redden, the sole stockholder, contributed $70,000 in cash and land worth $130,000 in exchange for common stock to open a new business, RR Consulting. Which of the following general journal entries will RR Consulting make to record this transaction?
A) Debit Assets $200,000; credit Common Stock, $200,000.
B) Debit Cash and Land, $200,000; credit Common Stock, $200,000.
C) Debit Cash $70,000; debit Land $130,000; credit Common Stock, $200,000.
D) Debit Common Stock, $200,000; credit Cash $70,000, credit Land, $130,000.
E) Debit Common Stock, $200,000; credit Assets, $200,000.

Question

Quizplus · Accepted Answer

The transaction involves a cash contribution of $70,000 and land worth $130,000 in exchange for common stock. Therefore, the company will debit cash for $70,000 and land for $130,000 and credit common stock for $200,000, which is the fair market value of the consideration received. Option A is incorrect because it does not specify which asset account to debit. Option B is incorrect because it combines two different types of assets in a single debit account. Option D is incorrect because it shows the credit to common stock before the debits to cash and land, which is not logical. Option E is incorrect because it implies that the company received assets other than cash and land in exchange for common stock, which is not the case in this transaction.

Richard Redden, the Sole Stockholder, Contributed $70,000 in Cash and Land