Question

Which of the following is correct for Smith Company when Smith issues 10,000 shares of $10...

Which of the following is correct for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $27,500 cash in exchange for the building? Smith Company exchanges assets to acquire a building. The market price of the Smith stock on the exchange date was $30 per share and the building's book value on the books of the seller was $275,000.

Stockholders' equity increases $272,500.

Total assets increase $272,500.

Total assets increase $300,000.

Stockholders' equity increases $275,000.

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Answer #1

The Answer is Total assets increase $ 300,000.

Explanation:

Entry for this transaction:

Account Titles and Explanation Debit Credit
Building $        327,500
Common Stock [10000*30] $        300,000
Cash $          27,500
(To record Building in exchange of common stock and cash)

In this transaction, Equity are increased by $ 300,000 and Assets are increased by $300,000 [Building - Cash ] [ $ 327,500 - $ 27,500 ].

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