Question

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

SOLUTION:

Clyde doesn't have more discretion and flexibility in the recording of his bartering exchanges because an entity shall recognize the services received or goods acquired in a share-based payment transaction when it obtains the services or the goods are received; and in the current scenario as Claire has to recognize the goods acquired.

Also as per FASB Statement 123R it requires that the resulting cost from all share-based payment transactions be recognized in the financial statements. In accounting it establishes fair value as the measurement objective for share-based payment arrangements and is applicable to all transactions involving share-based payment in which an entity acquires services or goods by issuing (or offering to issue) its shares.

Moreover according to FARS we have to use more reliable information as it states when the fair value of services or goods received in a share-based payment transaction with non-employees is measured more reliably than the fair value of the equity instruments issued, the fair value of the goods or services received can be used for measuring the transaction. Conversely when fair value of the equity instruments issued in a share-based payment transaction with non-employees is measured more reliably than the fair value of the consideration received, can be used for measuring the transaction based on the fair value of the equity instruments issued.

The impact of whether or not the barter arrangement involves newly issued stock or treasury doesn't matter, because if price paid exceeds the accounted amount for as the cost of treasury shares must be attributed to the other elements of the transaction and accounted for as per their substance. When the fair value of such other elements of the transaction is more clearly evident, those amounts have to be