Museum Corporation acquired a new manufacturing building by issuing 10,000 shares of its $50 par value preferred stock with a $75 per share market price.Similar buildings have recently cost $780,000.What are the effects of this transaction on the accounting equation for Museum?

Question

Quizplus · Accepted Answer

The acquisition of the new building increased the asset side of the accounting equation. Since the market price of the preferred stock is $75 per share, and the par value is $50 per share, the excess of the market price over the par value represents additional paid-in capital, which also increases the equity side of the accounting equation. Thus, the building increases by $750,000 (10,000 shares x $75 per share), the preferred stock increases by $500,000 (10,000 shares x $50 par value), and the additional paid-in capital-preferred increases by $250,000 ($75 market price - $50 par value x 10,000 shares). Therefore, the effects of this transaction on the accounting equation for Museum are: 
Assets = Liabilities + Equity 
+$750,000 = $0 + $750,000 
(Building) (Preferred stock) (Additional paid-in capital-preferred)

Museum Corporation Acquired a New Manufacturing Building by Issuing 10,000