This short exercise demonstrates the similarity and the difference between two ways to acquire plant assets. Case

Question:

This short exercise demonstrates the similarity and the difference between two ways to acquire plant assets.

Case A – Issue stock and buy the assets in separate transactions:

Wolford Company issued 12,000 shares of its $35 par common stock for cash of $950,000. In a separate transaction, Wolford used the cash to purchase a building for $560,000 and equipment for $390,000. Journalize the two transactions.

Case B – Issue stock to acquire the assets in a single transaction:

Wolford Company issued 12,000 shares of its $35 par common stock to acquire a building with a market value of $560,000 and equipment with a market value of $390,000. Journalize the transaction.

Compare the balances in all the accounts after making both sets of entries. Are the account balances the same or different?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...

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