On December 1, 2014, Abel Corporation exchanged 40,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase by

Question

Quizplus · Accepted Answer

The total value of the common stock exchanged is 40,000 shares x $55 per share = $2,200,000. 
Since the treasury shares were acquired at a cost of $40 per share, their total cost is 40,000 shares x $40 per share = $1,600,000.
Therefore, the gain on the exchange is $2,200,000 - $1,600,000 = $600,000 that will increase Abel's total stockholders' equity. 
Thus, the correct answer is choice C, $2,200,000.

On December 1, 2014, Abel Corporation Exchanged 40,000 Shares of Its