On December 1, 2014, Abel Corporation exchanged 40,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase bya. 400,000b. 1,600,000c. 2,200,000d. 1,800,000

Question

Business

Talia

16 December, 06:28

On December 1, 2014, Abel Corporation exchanged 40,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase bya. 400,000b. 1,600,000c. 2,200,000d. 1,800,000

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Answers (1)

Know the Answer?

Laurel Jordan · Answer 1

correct option is c. 2,200,000

Explanation:

given data

exchanged = 40,000 shares

common stock = $10

cost = $40

fair value = $55 per share

originally issued = $30 per share

to find out

total stockholders' equity will increase

solution

we will find stockholders' equity that is increase by as given formula

Increase in total shareholder's stock equity = No. of shares * Fair value per share ... 1

put here value

Increase in total shareholder's stock equity = 40,000 * $55

Increase in total shareholder's stock equity = $2,200,000

so correct option is c. 2,200,000