On December 2, 2014, Ewell Company purchases a piece of land from the original owner. In payment for the land, Ewell Company issues 8,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of $400,000. The journal entry to record this transaction would include which of the following items?

Question

Quizplus · Accepted Answer

When a company issues stock in exchange for an asset, the asset is recorded at its market value. In this case, the land's market value is $400,000. The common stock is recorded at its par value ($1.00 per share x 8,000 shares = $8,000), and the excess of the land's market value over the par value of the stock issued is credited to Paid-in capital (also known as Additional Paid-in Capital or Share Premium), which in this case is $392,000 ($400,000 - $8,000).

On December 2, 2014, Ewell Company Purchases a Piece of Land