1)On May 5, 2015, MacDougal Corp. exchanged 4,000 shares of its $25 par value tr
ID: 2474591 • Letter: 1
Question
1)On May 5, 2015, MacDougal Corp. exchanged 4,000 shares of its $25 par value treasury common stock for a patent owned by Masset Co. The treasury shares were acquired in 2014 for $90,000. At May 5, 2015, MacDougal's common stock was quoted at $34 per share, and the patent had a carrying value of $110,000 on Masset's books. MacDougal should record the patent at?
2)On June 30, 2015, Cey, Inc. exchanged 6,000 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2015 at a cost of $165,000. At the exchange date, Seely common stock had a fair value of $46 per share, and the patent had a net carrying value of $330,000 on Gore's books. Cey should record the patent at?
I am so confused on these, thanks for the help
Explanation / Answer
Answer for question no.1:
Number of shares exchanged =4000.
Par value of the shares=$25.
Cost of acquisition of treasury shares=$90,000.
Cost of these shares in the market on the date of recording of patent =$34 per share.
Cost of the patent in MacDougal corp=$110,000.
Fair value of the stock on the date of transfer of these shares to Masset's should be treated as cost of the patent.
i.e., $34*4000=$136,000, reason is, in case these shares are sold ny Masset's on the same date of acquistion, he would have earned the above said amount, hence the patent should be recorded at $136,000.
Answer for question no.2:
Number of shares exchanged=6,000.
Par value of shares=$30.
Cost of acquisition of Seely stock=$165,000.
On the date of exchange, fair value of the common stock=$46.
Cey should record the patent at the fair value on the date of exchange=$46*4000 =$276,000.
Carrying value of the patent in the books of the seller does not matter. Hence, the patent should be recorded at $276,000.
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