[aliciarenee80]

The question is...

The Callister Company exchanged 25,000 shares of its own $50 par value common stock for a turret lathe from Payne Company. The market value of the Callister Company stock was $68 per share at the date of the exchange. The equipment has a carrying value of $1,625,000.

Record the exchange on the books of Callister Company in general journal form.

I wasn't exactly sure how to do this one as in my book it looks like maybe there is more than one way of doing it. This is what I have and I was wondering if anyone could tell me both of these ways are correct or if one of them is wrong?

Equipment 1,625,000
Common stock 1,250,000
Paid in capital in excess of par 375,000

or

Equipment 1,700,000
Common stock 1,250,000
Paid in capital in excess of par 450,000

[morgaine300]

Hi. I see your point about the two different methods. Here's the difference. You're supposed to use the price that you consider to be more establish-able. (I know, that's not a word.)

The stock actually is selling at $68. Whereas the equipment has a carrying value of 1,625,000. The carrying value is simply what it happens to be on the other company's books, based on whatever depreciation method they are using. It's not a market value.

I would therefore choose to go with the market value of the stock and do your second entry.