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Smith Company exchanges assets to acquire a building. The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $250,000. Which of the following journal entries is correct for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for the building?A. Building Db 270,000 Cash Cr 20,000 Common stock Cr 100,000 Additional paid-in capital Cr 150,000 B. Building Db 370,000 Cash Cr 20,000 Common stock Cr 350,000 C. Building Db 370,000 Cash Cr 20,000

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Answer:

Smith Company

The correct journal entries for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for the building is:

A. Building Db 270,000

Cash Cr 20,000

Common stock Cr 100,000

Additional paid-in capital Cr 150,000

Explanation:

a) Data and Calculations:

Market price of stock = $35 per share

Building's book value = $250,000

Issue of 10,000 shares of $10 par value:

Common Stock $100,000 (10,000 * $10)

Additional paid-in capital $250,000 (at market price)

Cash $20,000

b) While the market price is $35 per share, the price at which the assets were exchanged will be reduced to $25 per share, since there was no receipt of cash from the seller of the building.

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