Question

Brief Exercise 10-07

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Sarasota Company obtained land by issuing 3,400 shares of its $12 par value common stock. The land was recently appraised at $147,720. The common stock is actively traded at $42 per share.

Prepare the journal entry to record the acquisition of the land. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

The answer can be done in two ways as the actual issue price of share is not specified. It is specified that shares are trading at $42 and had a par value of $12. Hence basis, answer had been given on two different assumption that:

1. If shares are issued at market price i.e. $42                      

Particulars	Debit	Credit
Land	$147720
Equity Share Capital (3400@$12)		$40800
Securities Premium (3400@$30)		$102000
Gain on Purchase of Land (P&L)		$4920

As the shares are issued at current market price, the difference between Current Market Price and Par Value will be accounted as securities premium.

2. If shares are issued at par value i.e. $12

Particulars	Debit	Credit
Land	$147720
Equity Share Capital (3400@$12)		$40800
Gain on Purchase of Land (P&L)		$106920

As the shares are issued at par value only, the difference between acquisition value and Par Value will be accounted as gain on purchase of land.

Please feel free to ask any point on which had any disconnect or need any further clarity.