This short exercise demonstrates the similarity and difference between the two ways to acquire plant assets.

Case A - Issue stock and buy the assets in separate transactions:

LowellLowell Inc., issued 19,000 shares of its $25 par common stock for cash of $600,000. In a separate transaction, LowellLowell used the cash to purchase a building for $520,000 and equipment for $80,000. Journalize the two transactions.

Case B - Issue stock to acquire the assets in a single transaction:

LowellLowell, Inc., issued 19,000 shares of its $25 par common stock to acquire a building with a market value of $520,000 and equipment with a market value of $80,000. Journalize this transaction.

Compare the balances in all the accounts after making both sets of entries. Are the account balances similar or different?

Journalize the transactions for cases A and B. (Record debits first, then credits. Exclude explanations from any journal entries.)

Let's begin with case A - Record the issuance of the common stock.

Case A - Record the purchase of the building and equipment.

Case B - Record the issuance of the common stock to acquire assets.

Compare the balances in all accounts after making both sets of entries. Are the account balances similar or different?