Question

Metlock, Inc. is authorized to issue 12000 shares of 9%, $100 par value preferred stock and 480000 shares of no-par common stock with a stated value of $1 per share. If Metlock issues 5500 shares of preferred stock for land with an asking price of $687500 and a market value of $632500, which of the following would be the best journal entry for Metlock to record?

Land		550000
	Preferred Stock		550000

Land		632500
	Preferred Stock		632500

Land		687500
	Preferred Stock		550000
	Paid-in Capital in Excess of Par - Preferred		137500

Land		632500
	Preferred Stock		550000
	Paid-in Capital in Excess of Par - Preferred		82500

Answer 1

5,500 preferred share of $100 par value were issued to buy land having asking price of $687,500 and market value of $632,500.

Since market value of land is available, hence land will be recorded at market value.

Value of land = $632,500

Preferred stock will be credited by = Number of preferred shares issued x Par value of 1 share

= 5,500 x 100

= $550,000

Paid in capital in excess of par - Preferred will be credited by = Value of land - Preferred stock

= 632,500-550,000

= $82,500

Land		632500
	Preferred Stock		550000
	Paid-in Capital in Excess of Par - Preferred		82500

Fourth option is correct.

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