Red Inc. issues shares of stock with a par amount of $1 per share in exchange fo

Question

Red Inc. issues shares of stock with a par amount of $1 per share in exchange for a machine. In accounting for the transaction:

Multiple Choice

If fair values of the stock and machine are unavailable, the stock should be recorded at its par amount.

The stock is recorded at its par amount unless the fair value of the machine is readily available.

Both the stock and machine are recorded at the fair value of the stock or the fair value of the machine, whichever is more clearly determinable.

The machine should not be depreciated because the stock has no term to maturity.

Explanation / Answer

Solution:

Where machine is purchased by issue fo stock then, "Both stock and machine are recorded at the fair value of the stock or the fair value of the machine, whichever is more clearly determinable."

Hence 3rd option is correct.

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