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Tom, Bill, and Joe decide to incorporate. The three investors transfer a building on 100 acres of land that they co-own. The fair market value
- Tom, Bill, and Joe decide to incorporate. The three investors transfer a building on 100 acres of land that they co-own. The fair market value of the building and land is $3,000,000. The building is worth $1,000,000, while the land is worth $2,000,000. The original purchase price 5 years ago was $1,750,000, with the building being worth $500,000 and the Land $1,250,000. They each receive 10,000 shares of $20 par common stock in return for the co-owned building. They need to raise an additional $1,000,000 in working capital. They are considering selling an additional 10,000 shares of $20 par value common stock or taking out a bank loan for $1,000,000 at a 5 % rate of interest. The FMV of the common stock is presently at $100 per share. They will be paying corporate taxes at the rate of 21%. We anticipate having net income of $500,000 before interest and taxes. Prepare a spreadsheet analyzing the two methods and tell me which method that you prefer and why. In addition, record the journal entries required for the contribution of the building and land and the issuance of the stock to the three owners.
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