Question

Clyde:              I acquired this land for my business by issuing stock. I did not pay a penny. Since it’s my stock, and I decided how much to give up for the land, does that mean I get to determine the value of the land on my balance sheet?

Fredrika:         You could have issued the stock to somebody else, taken the cash received, and paid for the land, right?

Clyde:              I suppose I could have, but I did not.

Fredrika:         The fact that you could have does imply there is some value for the stock and that it can be determined by referring to the market for that stock.

Clyde:              I also bartered for some equipment. I exchanged some treasury stock for those assets. I suppose you are going to suggest that I could have reissued that treasury stock to somebody else, taken the proceeds, and purchased the equipment instead. While I could have, I did not.

Fredrika:         What exactly did you expect the advantage to be of bartering with treasury stock? For that matter, why did you issue stock for the land rather than merely pay cash?

Clyde:              Frankly, I thought that would allow me to set the value of both the land and the equipment. I mean, when you pay cash, that is the amount paid -— open and shut. Whereas, when you barter with goods, services, or in my case stock, don’t I have some discretion then?

Fredrika:         Do you believe you paid a fair price in stock?

Clyde:              Certainly. I mean, I would not have given up the stock unless I thought I received fair value in exchange. Are you telling me that the identical value would be recorded in my barter exchanges as if I had given up cash instead of stock or Treasury Stock?

Required:

Does Clyde have more discretion in the recording of his bartering exchanges than he would have had by paying cash? Use the FASB’s Accounting Codification System to answer this question and briefly explain why. Provide the specific citation(s) paragraphs that support your answer by cutting and pasting them from Accounting Standards Codification. Do you think it matters whether treasury stock or newly issued stock is used?

 

Answer 1

According to FASB Statement 123R if there should be an occurrence of all offer based installment exchanges the costs will be perceived in the fiscal summaries according to the reasonable esteem that has been set up utilizing the estimation objective.

The reference section is: "If the reasonable estimation of products or administrations got in an offer based installment exchange with non-workers is more dependably quantifiable than the reasonable estimation of the value instruments issued, the reasonable estimation of the merchandise or administrations got will be utilized to gauge the exchange. Conversely, if the reasonable estimation of the value instruments issued in an offer based installment exchange with non-workers is more dependably quantifiable than the reasonable estimation of the thought got, the exchange will be estimated dependent on the reasonable estimation of the value instruments issued."

Hence Clyde does not have much caution in the chronicle of his bargaining trades that he would have had by paying money.

In conclusion the way that the stocks are recently issued stock or treasury stocks won't make any difference as any value that has been paid in overabundance of expense of treasury offers will be represented by crediting it to alternate components of exchanges.