Question

Retro Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Retro issues 5,000 shares of preferred stock for land with an asking price of $625,000 and a market value of $550,000, which of the following would be the best journal entry for Retro to record?a. Land 500,000Preferred Stock 500,000b. Land 550,000Preferred Stock 550,000c. Land 625,000Preferred Stock 500,000Paid-in Capital in Excess of Par - Preferred 125,000d. Land 550,000Preferred Stock 500,000Paid-in Capital in Excess of Par - Preferred 50,000

Answer 1

Answer:

c.  Land 625,000 Preferred Stock 500,000 Paid-in Capital in Excess of Par - Preferred 125,000

Explanation:

The  journal entry is shown below:

Land A/c Dr $625,000

   To Preferred stock $500,000

    To Paid-in Capital in Excess of Par - Preferred $125,000

(Being issue of preference shares for the land is recorded)

The land is recorded at historical cost or purchase price. In market value, the land should not be recorded that's why we considered asking price

And, the remaining balance is credited to the paid-in-capital account