Practice Question

A company issued 2,000 shares of its $10 par common stock for a tract of land. The stock had a fair
value of $18 per share on this date. The last property tax bill had the land assessed at $24,000. What
should be recorded as an increase in additional paid-in capital (APIC)?

A. $0

B. $ 4,000

C. $10,000

D. $16,000

Answer

What is the primary concept being tested? Asset cost, not APIC.

DR: Land (2,000 shares × $18) 36,000

CR: Common stock (2,000 × $10) 20,000

CR: APIC (2,000 × ($18 - 10)) 16,000

TWIST: What if given the appraisal value of the land and the company's stock is closely held?

Then appraised value would be cost of land, because it would be the most reliable value.

Donated Assets

Sometimes an asset is given, but no compensation is received (non-reciprocal transfer).

Contribution expense is the fair value (FV) of the asset donated.

1. Remove the book value (BV) of the asset donated.

2. The difference between BV and FV of the asset donated is a gain or loss.

If FV is not determinable, use BV for the contribution expense.

Practice Question

A company donated computer equipment to a university (a nonreciprocal transfer). The fair value of the
computer equipment was determinable. The difference between the fair value of the asset transferred
and its recorded amount at the date of donation should be recognized in the income statement when the
difference results in a:

PPE 5|Page