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A corporation issues 10,000 ordinary shares of $20 par value in exchange for land when the fair market value of the shares is $25 per share. At what amount is the land recorded?
A$225,000
B$200,000
C$50,000
D$250,000
Answer & Solution
Correct answer: D. $250,000
1. When shares are issued for a non-cash asset, the asset is recorded at the value of the shares.
2. Fair market value of shares = $25 per share.
3. Land value = $25 \times 10{,}000 = \$250{,}000$.
4. (Share capital would be $200,000 at par and share premium $50,000, but the land itself is $250,000.)
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §6.4 "Issuing Stock for Non-Cash Assets", p.249_
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