Horace Company had the following transactions during 2010, its first year of bus
ID: 2359308 • Letter: H
Question
Horace Company had the following transactions during 2010, its first year of business. a.Issued 5,000 shares of $5 par common stock for cash at $15 per share. b.Issued 7,000 shares of common stock on May 1 to acquire a factory building from Barkley Company. Barkley had acquired the building in 2006 at a price of $150,000. Horace estimated that the building was worth $175,000 on May 1, 2010. c.Issued 2,000 shares of stock on June 1 to acquire a patent. The accountant has been unable to estimate the value of the patent but has determined that Horace's common stock was selling at $25 per share on June 1. Required: 1. Record an entry for each transaction. 2.2. Determine the balance sheet amounts for common stock and additional paid-in capital. Common Stock ? Additional Paid-In Capital account ?Explanation / Answer
1. Cash A/c Dr (5000 * 15) 75000 To Common Stock A/c (5000 *5) 25000 To Additional Paid up capital A/c (5000 * 10) 50000 (Being 5000 shares issued for a premium of $10) 2. Building A/ c Dr 175,000 To Common Stock A/c (7000 * 5) 35000 To Additional paid up capital 140,000 (Being 7000 shares issued in exchange of building worth $175,000) 3. Patent A/c Dr (2000*25) 50000 To Common Stock A/c (2000*5) 10000 To Additional paid up capital 40000 (Being 2000 shares issued in exchange of patent worth $50000) Please note that when shares are issued for consideration other than cash, they are valued either at their current market value or at the current market price of the stock whoever is easily determinable. In case 2, market value of building on May 1, 2010 is known, hence we have taken that value of $175,000 In case 3, as market value of patent is not known, we have taken market price of stock ($25) as the value The additional paid up capital account would have a balance of $50,000 + $140,000 + $40,000 = $ 230,000 in the balance sheet The common stock account would have a balance of 14000 shares * 5 par value = $70000 (Total no. of shares issued * par value) Or we can also work it out this way: $25000 + $35000 + $10000 = $70000 in the balance sheet
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