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.

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

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dubeyshailja64 dubeyshailja64 · Answer 2 · 2022-02-15T14:30:36+01:00

The assets refers to the properties owned by a business. The correct statement for Smith Company is Total assets increase $350,000.

What is total asset?

Total assets refers to the sum of all assets owned by the business. It is shown in balance sheet as the properties of the business.

The value of asset that occurs in the balance sheet is its acquisition cost. The acquisition cost of the building will be market value of the shares issued and the cash paid.

Therefore,

[tex]\rm Cost\:of\:building = (10,000 \:x\:\$35) + \$20000\\\\\rm Cost\:of\:building = \$370,000[/tex]

The total asset consists of cash balances too. The transaction will cause decrease in cash balance. Hence, the net increase in total assets will be:

[tex]\rm \$370,000 - \$20,000 = \$350,000\\[/tex]

Hence the correct statement is A.

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