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 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. Total assets increase $350,000. B. Stockholders' equity increases $250,000. C. Stockholders' equity increases $330,000. D. Total assets increase $330,000.

Question

Business

Dale Young

12 September, 16:35

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 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. Total assets increase $350,000. B. Stockholders' equity increases $250,000. C. Stockholders' equity increases $330,000. D. Total assets increase $330,000.

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Answers (1)

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Van Walton · Answer 1

A) Total assets increase $350,000.

Explanation:

The total assets will increase by $350,00 since:

buildings will increase by $370,000: (10,000 stocks x $35 per stock) + $20,000 paid in cash = $350,000 + $20,000 = $370,000 cash will decrease by $20,000

Equity should also increase by $350,000 since 10,000 new stocks were issued and their fair market value was $35 per stock = 10,000 x $35 = $350,000