Question

Please read the case study below and use the Codification Research System to search for the solution to the issues raised at the end of the discussion in the “Required” section.

In formulating your response, please cut and paste those paragraphs noted above that you used to derive your answer.

WHAT HAPPENS WHEN YOU BARTER WITH STOCK?

Does It Matter Whether It’s Treasury Stock or Newly Issued Stock?

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

• An entity shall recognize the goods acquired or services received in a share-based payment transaction when it obtains the goods or as services are received. So therefore Clyde doesn’t have so much discretion in the recording of his bartering exchanges because he has to recognize the goods acquired when they are received.
• In FASB Statement 123R it also requires that the cost resulting from all share-based payment transactions be recognized in the financial statements.It establishes fair value as the measurement objective in accounting for share-based payment arrangements.it applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares,in amounts based, at least in part, on the price of the entity’s shares or other equity instruments.
• If the fair value of goods or services received in a share-based payment transaction with non-employees is more reliably measurable than the fair value of the equity instruments issued, the fair value of the goods or services received shall be used to measure the transaction.
• Whereas, if the fair value of the equity instruments issued in a share-based payment transaction with non-employees is more reliably measurable than the fair value of the consideration received, the transaction shall be measured based on the fair value of the equity instruments issued.
• It doesn’t matter whether or not the barter arrangement involves newly issued stock or treasury, because,the amount paid in excess of the amount accounted for as the cost of treasury shares should be attributed to the other elements of the transaction and accounted for according to their substance.
• If the fair value of those other elements of the transaction is more clearly evident, for example, because an enterprise's shares are not publicly traded, that amount should be assigned to those elements and the difference recorded as the cost of treasury shares(buy back of shares)