Dailey Company is a publicly held corporation whose $1 par value stock is actively traded at $22 per share. The company issued 2,000 shares of stock to acquire land recently advertised at $55,000. When recording this transaction, Dailey Company will

Question

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When a company issues stock to acquire an asset or make an acquisition, the stock is recorded at its fair value. In this case, the land was advertised at $55,000, but we do not know whether this is the fair value of the land. Therefore, we cannot use this amount for recording the transaction.

The par value of the stock is $1 per share, and the company issued 2,000 shares to acquire the land. Therefore, the total par value of the stock issued is $2,000 (2,000 shares x $1 per share). If the stock is trading at $22 per share, the total value of the stock issued is $44,000 (2,000 shares x $22 per share).

To record this transaction, we would debit Land for the fair value of the land, which is unknown in this case. We cannot use the advertised price of $55,000 because it may not reflect the fair value of the land. Therefore, we cannot choose option A or D.

We would credit Common Stock for the par value of the stock issued, which is $2,000 in this case. We would also credit Paid-In Capital in Excess of Par Value for the difference between the total value of the stock issued ($44,000) and the par value of the stock issued ($2,000), which is $42,000. Therefore, the correct answer is option C.

Dailey Company Is a Publicly Held Corporation Whose $1 Par