Museum Corporation acquired a new manufacturing building by issuing 10,000 share

Question

Museum Corporation acquired a new manufacturing building by issuing 10,000 shares of its $50 par value preferred stock with a $75 per share market price. Similar buildings have recently cost $780,000. What are the effects of this transaction on the accounting equation for Museum?

a. Building and Preferred Stock increase $500,000

b. Building increases $780,000; Preferred Stock increases $500,000; Additional Paid-in Capital--Preferred increases $280,000

c. Building and Preferred Stock increase $780,000

d. Building increases $750,000; Preferred Stock increases $500,000; Additional Paid-in Capital--Preferred increases $250,000

Explanation / Answer

Musuem corporation has in all received $750,000 by issuing preference shares and used this amount to purchase the new manufacturing building. All choices involving $780,000 are incorrect.

So,

Building increases $750,000; Preferred Stock increases $500,000; Additional Paid-in Capital--Preferred increases $250,000 -------> Option d is the correct answer.

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