Question

Smith Company exchanges assets to acquire a building. The market price of the Smith stock on...

Smith Company exchanges assets to acquire a building. The market price of the Smith stock on the exchange date was $35 per share and the building's book value on the books of the seller was $250,000. Which of the following is incorrect for Smith Company when Smith issues 10,000 shares of $10 par value common stock and pays $20,000 cash in exchange for the building? A) The common stock account increases by $100,000.

B) The building account increases by $370,000.

C) Stockholders' equity increases $350,000.

D) The additional paid-in capital account increases by $100,000.

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Answer #1

D) The additional paid-in capital account increases by $100,000.

Explanation:

The following statements are correct as explained below:

The common stock increases by $100,000 i.e. 10,000 shares at $10 per share = 10,000 X 10 = 100,000.

The Building Account increases by #370,000 i.e. 10,000 shares at $35 per share + $20,000 cash = 10,000 X 35 +20,000 = $370,000.

Also, Stockholder's equity increases by $350,000 i.e. 10,000 shares at $35 per share = 10,000 X 35 = $350,000.

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