E13-6 As an auditor for the CPA firm of Bunge and Dodd, you encounter the follow

Question

E13-6
As an auditor for the CPA firm of Bunge and Dodd, you encounter the following situations in auditing different clients.

Desi Corporation is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,000 shares of its $20 par value common stock. The owners' asking price for the land was $120,000, and the fair market value of the land was $115,000.
Lucille Corporation is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 20,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $250,000. The stock was selling at $12 per share.

Instructions

Prepare the journal entries for each of the situations above. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.)

Account/Description Debit Credit
1.


2.

Explanation / Answer

1. Debit ...Cash $100,000 Credit ....Capital Stock $100,000 then, Debit .........Land - $120,000 Credit ........Cash - $120,000 2. Debit ...Cash $200,000 Credit...Capital Stock $200,000 then, Debit .............Land - $250,000 Credit ...........Cash - $250,000 the stock trading at $12/share is a red herring. It doesn't matter what it's trading at on the market. The company only gets cash from the initial issuance of stock.

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