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 journal entries is correct 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. Building Db 270,000 Cash Cr 20,000 Common stock Cr 100,000 Additional paid-in capital Cr 150,000 B. Building Db 370,000 Cash Cr 20,000 Common stock Cr 350,000 C. Building Db 370,000 Cash Cr 20,000

Smith Company

The correct journal entries 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 is:

A. Building Db 270,000

Cash Cr 20,000

Common stock Cr 100,000

Additional paid-in capital Cr 150,000

Explanation:

a) Data and Calculations:

Market price of stock = $35 per share

Building's book value = $250,000

Issue of 10,000 shares of $10 par value:

Common Stock $100,000 (10,000 * $10)

Additional paid-in capital $250,000 (at market price)

Cash $20,000

b) While the market price is $35 per share, the price at which the assets were exchanged will be reduced to $25 per share, since there was no receipt of cash from the seller of the building.

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