This short exercise demonstrates the similarity and the difference between two ways to acquire plant assets.
Case A––Issue stock and buy the assets in separate transactions:
Ashley, Inc., issued 12,000 shares of its $20 par common stock for cash of $800,000. In a separate transaction, Ashley used the cash to purchase a building for $550,000 and equipment for $250,000. Journalize the two transactions.
Case B–Issue stock to acquire the assets in a single transaction:
Ashley, Inc., issued 12,000 shares of its $20 par common stock to acquire a building valued at $550,000 and equipment worth $250,000. Journalize this transaction.
Compare the balances in all the accounts after making both sets of entries. Are the account balances similar or different?