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When Langston Corporation was formed on January 1, 20x5 the corporate charter provided for 50,000 shares...

When Langston Corporation was formed on January 1, 20x5 the corporate charter provided for 50,000 shares of $20 per value common stock. The following transactions were among those engaged in by the corporation during its first month of operation:

1. Issued 200 shares of stock to its lawyer in full payment of the $5000 bill for assisting the company in drawing up its article of incorporation and filing the proper papers with the state agency
2. The company issued 8,000 shares of stock at a price of $25 per share
3. The company issued 8,000 shares of stock in exchange for equipment that had a fair market value of 160,000

The entry to record transaction 3 is

A. Equipment.    160,000
common stock.     160,000

B. Common stock 160,000
Equipment 160,000

C. Additional paid in capital. 35,000
     Equipment.                           125,000
     Common stock.                    160,000

D Cash.                        160,000
Equipment.                 160,000

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Answer #1

Following will be the journal entry when 8,000 common shares of par value $20 each are issued in exchange for equipment having a fair market value of $160,000.

Journal

No

Account Title and Explanation

Debit

Credit
A Equipment 160,000
Common stock 160,000

Equipment will be recorded at its fair market value of $160,000. Amount to be credited to common stock = Number of shares issued x Par value of 1 share

= 8,000 x 20

= $160,000

Correct option is (A)

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