Can anyone tell me why retained earning is eventually decreased by $25000.
Extracted text: value isn't relevant because the shareholders will demand shares equal to the market value of the capital and additional paid-in capital accounts accordingly. The assets' prior book par ordinary shares for equipment worth $4,000 and a building worth $120,000. Kahn's entry is: asset contributed. For example, on November 12, Kahn Corporation issued 15,000 shares of its $1 A1 D Nov. 12 Equipment 21 4,000 120,000 Building Ordinary Shares (15,000 × $1) Paid-in Capital in Excess of Par ($124,000 – $15,000) To issue no-par shares in exchange for equipment and a building. 15,000 109,000 4 Assets and equity both increase by $124,000. Shareholders' Assets Liabilities Equity + 4,000 0. + 15,000 + 120,000 + 109,000 Ordinary Shares Issued for Services. Sometimes a corporation will issue shares in exchange for services rendered, either by employees or outsiders. In this case, no cash is exchanged. However, the transaction should be recognized at fair market value. The corporation would otherwise recog- nize an expense for the fair market value of the services rendered. Share capital is increased for its par value (if any), and additional paid-in capital is increased for any difference. For example, assume that Kahn Corporation engages a website designer to create the company's website. The website designer would ordinarily charge $25,000 for such services, but agrees to accept shares rather than cash in settlement of the fee. The fair market value of each share at the time of exchange is $10 per share (par value of $1 per share). The journal entry to record the transaction would be: A1 D A Website development Ordinary Shares Paid-in Capital in Excess of Par ($25,000 – $2,500) 9XY500 25,000 2,500 22,500 21 3. In this case, retained earnings (shareholders' equity) is eventually decreased by $25,000 (when the net profit is closed to retained earnings account), and paid-in capital (shareholders' equity) is increased for the same amount. Share Issuance for Other than Cash Can Create an Ethical Challenge eounting standards require a company to record its shares at the fair market value of whatever the Couion receives in exchange for the shares. When the corporation receives cash there is clagr