/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 3E Twenty-five thousand shares reac... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 15: 3E (page 812)

Twenty-five thousand shares reacquired by Elixir Corporation for \(53 per share were exchanged for undeveloped land that has an appraised value of \)1,700,000. At the time of the exchange, the common stock was trading at $62 per share on an organized exchange.

Instructions

a) Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock was originally recorded using the cost method.

b) Briefly identify the possible alternatives (including those that are totally unacceptable) for quantifying the cost of the land and briefly support your choice.

Short Answer

Expert verified

The acquisition of land should be debited with the amount of $1,550,000,and treasury stock and paid-in capital from the treasury stock account should be credited with $1,325,000 and 225,000,respectively.

Step by step solution

01

Meaning of Common Stock

An ownership interest in a corporation is represented by common stock. Board members are elected by common stockholders, who vote on corporate policies.

02

Preparing Journal Entries

Date

Particular

Debit ($)

Credit ($)

Land A/c

1,550,000

To Treasury Stock

1,325,000

To Paid-in Capital from

Treasury stock A/c.

225,000

(being share issued)

03

Identifying the possible alternative for quantifying the cost of the land

Taking into account the cost of treasury stock might be used. This, however, is not a useful metric for this economic event. It is a measure of a previous, unrelated occurrence.

Although the land鈥檚 estimated value is a suitable alternative (if based on appropriate fair value calculation procedures), it is an appraisal rather than a market-determined price. The stock's market price is most likely the greatest fair value indicator of the transaction.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Under IFRS, the amount of capital received in excess of par value would be credited to:

(a) Retained Earnings.

(b) Contributed Capital.

(c) Share Premium.

(d) Par value is not used under IFRS

Graves Mining Company declared, on April 20, a dividend of \(500,000 payable on June 1. Of this amount, \)125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.

The following comment appeared in the notes of Colorado Corporation鈥檚 annual report: 鈥淪uch distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company鈥檚 ordinary cash dividends.鈥� How would a partial liquidating dividend be accounted for in the financial records?

For what reasons might a corporation purchase its own stock?

(Treasury Stock鈥擡thics) Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation鈥檚 CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a 鈥済ood鈥� offer. Kenseth knows the corporation鈥檚 cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.)

Instructions

Answer the following questions.

  1. Who are the stakeholders in this situation?
  2. What are the ethical issues involved?
  3. Should Kenseth authorize the transaction?
See all solutions

Recommended explanations on Business Studies Textbooks

Actuarial Science in Business

Read Explanation

Insurance

Read Explanation

Public Relations Business Studies

Read Explanation

Project Planning & Management

Read Explanation

Business Data Analytics

Read Explanation

Strategy

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.