Question

Monty Corporation is authorized to issue 53,000 shares of $5 par value common stock. During 2017, Monty took part in the following selected transactions.

1.		Issued 5,300 shares of stock at $48 per share, less costs related to the issuance of the stock totaling $4,900.
2.		Issued 1,100 shares of stock for land appraised at $53,000. The stock was actively traded on a national stock exchange at approximately $49 per share on the date of issuance.
3.		Purchased 500 shares of treasury stock at $45 per share. The treasury shares purchased were issued in 2013 at $42 per share.

(a)		Prepare the journal entry to record item 1.
(b)		Prepare the journal entry to record item 2.
(c)		Prepare the journal entry to record item 3 using the cost method.

Answer 1

Solution:

Transaction	General Journal	Debit	Credit
a)	Cash (5300 Shares x $48 - Issue Cost $4,900)	$249,500
	Common Stock (5300 Shares x $5 par value)		$26,500
	Additional Paid in Capital (balancing figure)		$223,000
b)	Land (Refer Note 1)	$53,000
	Common Stock (1100 Shares x Par Value $5)		$5,500
	Additional Paid in Capital (balancing figure)		$47,500
c)	Treasury Stock (500 Shares x Cost $45)	$22,500
	Cash		$22,500
	Cash (500 Shares x 42)	$21,000
	Retained Earnings (Balancing figure)	$1,500
	Treasury Stock (500 Shares x Cost $45)		$22,500

Note 1 --- Land Appraised Value $53,000

However, the exchange traded value $49 per share provides the fair value of the stock. It is more reliable measure than the appraised value of the land. Fair Value come 1100 Shares x 49 = $53,900

Since the Appraised Value of Land is less than Fair Value of Shares, the Appraised Value should be taken to measure the land appraisal.

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