If Ken’s Canaries, which is not publicly traded, issues common stock in exchange for a new delivery truck, how should the transaction be recorded?
Explanation
Answer - E - If common stock is issued in exchange for a new delivery truck, the transaction is recorded with either the fair market value of the truck or the fair market value of the common stock, whichever can be valued more objectively.
Key Takeaway: Non-cash assets should be recorded at the fair market value of the asset received or the common stock given up, whichever can be valued more objectively. In the example, the fair market value of the truck would have a more objective value, as it can be checked through a “blue book,” while the stock would have a more subjective value, since it is not publicly traded.
