Question

On February 12, 2021, Diego Inc. issued 330,000 of its common shares in exchange for equipment for which the cash price was known to be $790,000. The articles of incorporation authorized the issue of 4 million common shares, $1 par per share. The most recent issuance of common shares prior to the acquisition of the equipment was back on May, 1, 2020 for a cash price of $3 per share.

What in the following would NOT be included in the journal entry to record the share issued in exchange for the equipment?

	All of the other answers should be included in the entry.
	A credit to Paid-In Capital - Excess of Par for $660,000
	A credit to Common Stock for $330,000.
	A debit to Equipment for $790,000.

Answer 1

On February 12, 2021, Diego Inc. issued 330,000 of its common shares in exchange for equipment for which the cash price was known to be $790,000

Par value of 1 common share = $1

Number of common shares issued = 330,000

Cost of equipment purchased = $790,000

Equipment will be debited by $790,000

Common stock will be credited by = Number of common shares issued x Par value of 1 common share

= 330,000 x 1

= $330,000

Paid-In Capital - Excess of Par will be credited by = Cost of equipment purchased - Common stock

= 790,000 - 330,000

= $460,000

Thus, A credit to Paid-In Capital - Excess of Par for $660,000, would NOT be included in the journal entry to record the share issued in exchange for the equipment.

Second option is correct.